Old and still drinking water and eating dry white toast.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Moody's Investors Service put Greece's credit rating on review for a possible downgrade on Thursday, citing uncertainty over the country's ability to cut debt to sustainable levels.
The decision was made even as the rating firm acknowledged Greece has made "significant" progress in implementing a large fiscal consolidation effort.
A multi-notch downgrade could be possible if Moody's concludes there is an increased risk the ratio of debt to gross domestic product will fail to stabilize in three to five years or that support from the European Union turns out to be less strong after 2013.
"Therefore, Moody's review will focus on the factors, namely nominal growth and fiscal consolidation, that will drive the country's debt dynamics over the next few years," the firm said in a statement.
Moody's currently rates Greece at Ba1, the highest junk status rating and equal to Standard & Poor's BB-plus rating. Fitch Ratings remains at investment grade status of BBB-minus.
The Moody's review was announced as EU leaders gathered in Brussels for a summit dominated by the search for ways to stop market contagion engulfing more high-deficit member states.
Greece has suffered a series of downgrades since revealing last year that its budget deficit was more than twice as big as forecast, triggering a debt crisis that has sent shockwaves through global markets.
Its 10-year debt yield fell nearly 3 basis points on Thursday to bid 12.118 percent as the price rose 0.112 point to 67.743 according to Thomson Reuters Tradeweb.
Moody's is the second agency to put the debt-choked country on review for possible downgrade this month, following a similar move by Standard and Poor's.
Fitch is currently reviewing its rating and has said it would reach a conclusion by the end of the year.
Greece has launched a series of fiscal austerity measures as part of a 110-billion-euro ($150-billion) EU/International Monetary Fund bailout agreement that saved it from bankruptcy in May.
Greek protesters clashed with police and set fire to cars and a hotel in central Athens on Wednesday while tens of thousands marched against the reforms and spending cuts aimed at pulling the country out of its debt crisis.
"The government is clearly very determined to push the adjustment process forward but it is facing significant political and administrative headwinds," said Sarah Carlson, sovereign credit analyst at Moody's in London.
Implementation risk is particularly high in 2011, and during the review Moody's will be looking at how those risks are being addressed, the statement said.
The decision to begin the review was also predicated upon increased uncertainty over debt levels given they were recently revised substantially higher; a large revenue shortfall in 2010; and concerns over the level of ongoing support it might receive if its market access remains cut off.
EU and IMF support remain strong as long as Greece follows through with its austerity measures, but Moody's felt there is also a risk to this view as well.
"The authorities' willingness and ability to provide Greece with additional assistance is not assured and particularly depends on program implementation," Moody's said.
"Moreover the precise nature and conditions of support that will be forthcoming after 2013, and the implications that this will have for bondholders, is unclear," the statement said.
A new mechanism for debt agreements would include collective action clauses (CAC) from 2013, under EU proposals.
CAC's allow a majority of bond holders to override objections from minority holders in seeking an agreement on a debt restructuring.
Asked when Moody's planned to conclude the review, Carlson told Reuters: "We want to resolve reviews as quickly as possible"
Moody's Blues
Reaching the age of consensus
It was ironic that as the Greek government supposedly went in search of consensus last week, the streets of Athens should look just like the streets of other European capitals. As Prime Minister George Papandreou embarked on his doomed attempt to reach agreement with opposition party leaders, the only place where there seemed to be any unity of opinion was on the streets.
Student protestors in London raged against a coalition government pricing many of them out of university education, Italians vented their frustration at the seemingly impossible survival of Prime Minister Silvio Berlusconi while in Athens private and public sector workers expressed their anger at the latest set of reforms that are changing the face of Greek society.
Amid this turmoil, like the fishing boat skipper setting out for sea as the perfect storm looms, Papandreou cast his nets in the hope of catching a public relations victory. His effort to achieve “consensus” can be seen as nothing else but a frivolous foray into the choppy waters of political gamesmanship when there are much more pressing issues to deal with, such as thousands of Greeks losing their jobs and the country going through a violent adjustment to economic reality.
At a time when Greece, as well as many other countries in Europe are beginning to resemble the fractured British society of the Margaret Thatcher years, one of the former UK prime minister’s comments comes to mind: “To me, consensus seems to be the process of abandoning all beliefs, principles, values and policies. So it is something in which no one believes and to which no one objects.” It perfectly sums last week’s aborted attempt to build accord between the parties.
Ostensibly, Papandreou invited the other party leaders for talks to find common ground on the challenging reforms prescribed by the European Union and the International Monetary Fund and to adopt common positions ahead of the EU leaders’ summit in Brussels at the end of last week, where politicians were due to agree on the details of the permanent support mechanism for members with sovereign debt problems. In reality, though, there were no grounds for believing that any of the political leaders would agree to common positions on the reforms or on what positions Greece should adopt at the EU negotiations.
It was delusional to expect any kind of understanding on the structural changes given that they were due to be voted through Parliament a few hours after the party leaders met Papandreou. It’s no formula for success to encourage someone to join you on a journey when your bags are already packed, the keys are in the ignition and the engine is running. Understandably, none of the other leaders decided to jump in the moving vehicle. As New Democracy chief Antonis Samaras pointed out, there is a world of difference between “consensus” and “consent.” None of the other parties had been consulted about the content of the bill on the restructuring of public utilities such as the Hellenic Railways Organization (OSE) and the redrafting of labour laws. Once the legislation has been submitted to the House, the role of the opposition parties is to debate it and then vote for or against it – the time for consensus-building has passed. But even at this late stage, the government did all it could to antagonize the opposition rather than encourage unity by submitting the reforms as an emergency bill and thereby limiting debating time to an absolute minimum. It’s no surprise that the Coalition of the Radical Left (SYRIZA) leader Alexis Tsipras decided to boycott the talks with Papandreou – being portrayed as an accessory to policies you do not agree with, nor have had any part in shaping is not something that any young politician wants to have on their CV.
The reasoning that Tuesday’s “consensus” talks would firm up Greece’s positions ahead of the EU leaders’ summit was also feeble. Papandreou had already made his government’s ideas on some of the key issues crystal clear both at home and abroad. He had been shouting from the European rooftops for some time that Athens was in favour of the creation of a Eurobond and against private bondholders having to accept lower returns, or a “haircut”, on their investment as part of a permanent bailout scheme. It’s implausible that Papandreou would have suddenly performed a volte-face because Communist Party (KKE) leader Aleka Papariga or the Popular Orthodox Rally’s (LAOS) Giorgos Karatzaferis expressed misgivings. As it turned out, the Brussels summit was a damp squib rather than a landmark moment demanding national agreement from all of Greece’s politicians.
There is no doubt there are few choices in the sticky position Greece finds itself– there is never much wiggle room when you have been backed into a corner. But this doesn’t mean that everyone has to agree on the course being followed to get Greece out of the crisis. After all, it has never been the role of any opposition to provide the sitting government with succour. Its duty has always been to challenge the government’s policies, to highlight its failings and to offer alternatives. One area where Greece’s opposition parties can be seriously criticized is not in their inability to find common ground with PASOK but in their failure to provide plausible alternatives. Samaras developed a pie-in-the-sky scheme to wipe out Greece’s debt by the end of 2011, which was roundly rejected in the November local elections. In democracies, opposition parties have and always will be judged by the quality of their opposition, not the level of consensus they achieve with the government.
Greece is going through a period of immense upheaval, during which, as Samaras said “the terms by which millions of Greeks live are changing.” Clearly, if everybody agreed on the recipe for change, this process would be straightforward but it would also mean our living, breathing democracy would be brain dead. If people are not to question their government’s choices now, then when? Why shouldn’t voters or politicians doubt the efficacy or fairness of some of the EU-IMF-prescribed decisions?
From the latest package of reforms, for instance, few would argue with reducing wages at public enterprises, where many employees had built cash-lined fiefdoms, and cutting costs at public transport companies that are losing taxpayers’ money by the bus-load. In fact, New Democracy supported these provisions, proving that you don’t go in search of consensus; you build it around your ideas. In contrast, it was much more difficult for the opposition parties to back the articles of last week’s bill that allow companies to bypass collective labour contracts by offering employees in-house deals. This is a clear challenge to the rights of employees in the private sector, who unlike their pampered public sector counterparts have only been enjoying the protection offered by collective contracts since the 1990s. These agreements, which blossomed after Greece’s entry into the EU, are designed to give workers more reasonable pay and conditions and shelter from unscrupulous bosses, of whom there are many in Greece. As such, they are completely in keeping with the EU’s ideal of creating fairer, more socially conscious societies. To strip away these rights, which include respectable compensation deals for sacked employees, as jobs dry up and Greeks have to think about how they’re going to feed themselves and their families only increases the sense of insecurity.
Equally importantly, it’s an affront to the section of Greek society that has carried the country for the last few decades. Private sector workers, of whom there are about 2 million in Greece, have been the ones who have consistently paid their taxes and social security contributions – after all, their wages are taxed at source. Whether the employers who have withheld this money have been equally diligent is another question. Yet, despite their unswerving dedication to fairness and the advancement of national cause, it’s these workers that find themselves being punished by the latest measures, which look like a precursor to collective contracts being scrapped altogether and private sector wages being forced down.
In this climate, therefore, it seems unrealistic, almost offensive that voters and opposition politicians are being asked to give their consent without the government making any effort to win what is a crucial argument. The bypassing of Parliament and collective contracts and the mantra that “there is no alternative” does not make for a healthy democracy, or for a public that can find much good in the measures. It’s a mix that leads to people losing their belief in the political system and seeking answers, a voice and, in some cases retribution, on the streets. After all, the way things are going, this is where an increasing number of Greeks will find themselves anyway.
Inside Greece
The Eurobonds that bind us
At first they appeared to be two disparate worlds even though they were physically separated by only about 100 meters: The Communist Party supporters who gathered in front of Parliament on Tuesday to tell International Monetary Fund Managing Director Dominique Strauss-Kahn to go home; and the journalists, academics and students who took seats in a snug underground amphitheater to hear a debate on how the media in Germany and Greece have covered the economic crisis.
However, these two seemingly unconnected events had much more in common than at first glance. In essence, they formed a microcosm of the European Union today, emphasizing the unrest and dissent that exist within states but also the disagreement and tension that exist between them. The Communists represented the growing disquiet about an EU that’s moving away from the platform of security and prosperity it was built on. The differing views of the Greek and German journalists and government officials on the panel epitomized the way the crisis has laid bare the contrasting visions that Europeans have about the way forward.
Europe takes its name from the mythological figure of Europa – so beautiful that Zeus transformed himself into a bull to seduce her and carry her to Crete. The tale is depicted on the reverse of the 2-euro coin. It’s the euro that has been at the forefront of carrying the EU to what looked like a promised land of economic growth and shared values. But now Europe is lost in a wilderness of debt and national interests and there is nobody around to whisk her off to greener pastures. The euro, however, has the ability to become the Union’s driving force again – even if this week’s events made that seem as likely as Zeus coming down from Mount Olympus to wipe out Greece’s national debt.
The disagreement and division in the air around Syntagma Square this week was in keeping with the mood of disunity that followed a proposal to launch a Eurobond that would, in theory, ensure greater economic stability within the bloc. The suggestion was made by Italian Finance Minister Giulio Tremonti and Luxembourg’s Prime Minister Jean-Claude Juncker, also the head of the Eurogroup, in the Financial Times on Monday. They proposed that the members of the eurozone issue common bonds, or E-bonds, because this pooling of debt would bring greater stability, fiscal integration and create a note so attractive to investors that it would bring down the cost of borrowing for eurozone members like Greece, which are currently suffering from soaring spreads.
The Eurobond would, as Juncker and Tremonti argued, send a clear message to financial markets that European politicians are committed to political, economic and monetary union and the “irreversibility of the euro.”
On the same day, a top economist at the British Treasury told a parliamentary committee that the collapse of the euro was “possible,” sparking all kinds of consternation across the continent and on the markets. It made the significance of Juncker and Tremonti’s suggestion even greater. Beyond the economic principles behind the idea of creating the E-bond, the proposal urges togetherness at a time when the EU desperately needs it.
The Eurobond, however, was immediately and flatly rejected by German Chancellor Angela Merkel. “It is our firm conviction that the treaties do not allow joint Eurobonds; in other words, no universal interest rate for all European member states,” she said.
French President Nicolas Sarkozy, who lately has formed a policy tag-team with Merkel, also shunned the proposition, arguing it would allow the more irresponsible states to run up debts in the knowledge it would not increase the cost of their borrowing. “If it’s about increasing Europe’s debt, that would have the effect of taking responsibility away from each state,” he said after meeting the German chancellor on Friday. “We want exactly the opposite – making states more responsible.”
The Netherlands and Austria were also against the idea. Along with Germany, these countries have lower debt levels, competitive economies and therefore pay much lower interest on their bonds than eurozone members at the other end of the scale, like Greece, Ireland and Portugal. A move to a Eurobond would lead to Germany paying higher interest as the risk of default among the weaker eurozone members would be factored into the note’s yield.
The German concerns are therefore understandable, but the alternatives to the Eurobond are equally worrying. Clearly, further steps need to be taken to bring eurozone members and their economic and fiscal policies closer together if the single currency is going to come out of this crisis with any long-term viability. If Germany rejects such moves, it opens up the possibility of creating a two-tier, two-speed euro, whereby the more stable countries introduce a “hard-currency euro.”
Such an idea was recently put forward by Hans-Olaf Henkel, former president of the Federation of German Industry, who is rumored to be considering launching an anti-euro party. The other alternative, which perhaps would not displease many Germans at the moment, would be a return to the Deutsche Mark, leaving the others to pick up the pieces of a broken euro. Either scenario would be disastrous for European unity.
Perhaps that’s why Juncker shed the cloak of diplomacy usually worn by European technocrats and gave an uncharacteristically blunt response. “Germany is thinking a little simply,” he told the weekly Die Zeit, accusing Berlin of rejecting the idea before studying it properly and of behaving in an “un-European manner.”
Who would have thought that the chief architects of a united Europe would one day be accused of being “un-European”? Even though the crisis has highlighted common weaknesses and interdependencies in Europe, it has also prompted countries to focus on their own interests more intently than before. Nowhere is this more evident than in Germany, where the national mood seems to be one of unwillingness to give up or give away what Germans have spent decades working for.
“Perhaps for the first time since the Second World War, they are allowing themselves to be defiant and proud,” Katinka Barysch, deputy director of the Center for European Reform, told the Financial Times. “Their export-oriented, stability-obsessed economic model is not up for discussion.”
At times, this has caused Germany to be shortsighted or even selfish: Its initial reluctance to bail out Greece, its insistence that the IMF be part of the rescue package, its persistence in ensuring that private bondholders share the liability for a permanent support mechanism or in its rejection of the Eurobond proposal.
But, again, the alternative of being a lone wolf rather than part of the pack is not as appealing as it might first seem. Not being involved in the single currency would have a disastrous effect on the German economy. Roughly 40 percent of German exports go to eurozone countries. These would all immediately become much more expensive if the Deutsche Mark returned. A downturn in exports would then have a series of knock-on effects, including a rise in unemployment. It would also mean the EU losing its voice in the global economy, where the USA and China would be left in a much more dominant position.
Whichever way Germany turns, its future seems inextricably linked to the EU and the euro. Ultimately, it has much more to gain from the eurozone riding out this crisis and emerging stronger on the other side than by cutting its losses now and going it alone.
Despite her recalcitrance, Merkel acknowledged as much on Friday. “If the euro fails, Europe fails,” she said. “This is a deeply serious matter for me and that’s why Germany will do everything to defend the euro jointly with the other members.”
That’s why Germany may change its mind on the Eurobond proposal. Yes, it will make the cost of borrowing a little more expensive, but the alternatives could be more damaging. “What are the risks to the German yield curve of the destruction of around half of German banks’ capital if the eurozone was broken up?” writes Joseph Cotterill in the FT’s Alphaville blog. “Or if, say, the European Financial Stability Facility’s lending capacity becomes so debased that only a direct fiscal transfer will satisfy markets, should it come to Spanish or Italian crisis?”
In the midst of the acrimony and disagreement clouding Europe’s decision-making process, one thing seems clear: The future of Europe, as well as that of Germany, rests on the ability of its policymakers to find the points where national interests meet common interests. This is the place where Zeus now has to carry Europa. It is here that she has a chance of living securely and prosperously.
Eurobonds
France’s AAA Grade at Risk as Rating Cuts Spread: Euro Credit
Dec. 20 (Bloomberg) -- France risks losing its top AAA grade as Europe’s debt crisis prompts a wave of downgrades that threatens to engulf the region’s highest-rated borrowers, with Belgium also facing a possible cut, analysts and investors said.
Moody’s Investors Service said Dec. 15 it may lower Spain’s rating, citing “substantial funding requirements,” and slashed Ireland’s rating by five levels on Dec. 17. Standard & Poor’s is reviewing its assessments of Ireland, Portugal and Greece. Credit default swaps show it’s more expensive to insure Belgian, French and Austrian bonds than lower-rated securities from Chile and the Czech Republic.
“Every sovereign may get penalized in the year ahead,” said Toby Nangle, who helps oversee $46 billion as director of asset allocation at Baring Asset Management in London. “It would a big deal if France was to have its AAA rating stripped. I don’t think the likelihood of a downgrade is reflected in the market.”
European Union leaders agreed last week to amend the bloc’s treaties to create a permanent debt-crisis mechanism in 2013 in an effort to stem contagion that started more than a year ago in Greece. Government bond yields climbed across the region even after Greece and Ireland were rescued and a backstop facility worth about $1 trillion was created.
“If problems in the euro zone aren’t solved quickly, then the conditions of refinancing will be expensive for these countries and the ratings agencies will do more downgrades,” said Ralf Ahrens, who helps manage about $20 billion as head of fixed income at Frankfurt Trust. “We already see these dynamics in the market. I see France as a risk.”
Bondholder Banks
France’s credit rating is susceptible unless the country makes “meaningful reductions” to its deficit, said Padhraic Garvey, head of developed-market debt strategy at ING Bank NV in Amsterdam. The nation’s banks are the biggest holders of debt issued by the region’s so-called peripheral countries, posing possible “systemic risks,” added Markus Ernst, a credit strategist at UniCredit SpA in Munich.
Costs to insure French government debt trebled this year to about 102 basis points, approaching the record high of 105 reached on Nov. 30, according to data provider CMA.
Credit-default swaps tied to the French bonds imply a rating of Baa1, seven steps below its actual top ranking of Aaa at Moody’s, according to the New York-based firm’s capital markets research group.
Contracts on Portugal imply a B2 rating, 10 levels below its A1 grade, while swaps tied to Spanish bonds trade at Ba3, 11 steps below its Aa1 ranking, data from the Moody’s research group show. Derivatives protecting Belgian debt imply a rating of Ba1, nine steps below its current rating of Aa1.
Political Infighting
In Belgium, seven political parties involved in coalition talks are sparring over whether to grant more fiscal autonomy for the country’s regions after inconclusive elections in June left it without a government. The public debt of Belgium is close to 100 percent of gross domestic product, and 65 billion euros ($87 billion) of the nation’s bonds and bills are due to mature next year, according to data compiled by Bloomberg.
“Belgium’s prolonged domestic political uncertainty poses risks to its government’s credit standing,” S&P said in its Dec. 14 report that lowered the country’s outlook to “negative” from “stable.”
The European Union agreed in October to establish a European Stability Mechanism to deal with nations struggling to meet debt payments. The finance ministers of the 16 nations sharing the euro said Nov. 28 that “an ESM loan will enjoy preferred-creditor status, junior only” to International Monetary Fund loans.
S&P Warnings
The statement, which means bondholders rank behind those emergency loans, prompted S&P to warn it may lower the BB+ rating on Greece and A- long-term rating on Portugal. The decision also deepened the crisis, Morgan Stanley analysts said.
“The current stage of the global sovereign debt crisis is the consequence of a demotion of government bonds in the liability structure of governments,” Arnaud Mares, an executive director at Morgan Stanley and former senior vice president at Moody’s, said in a Dec. 6 investor note.
Spanish funding needs for “regional governments and the banks make the country susceptible to further episodes of funding stress,” Moody’s analyst Kathrin Muehlbronner said in a Dec. 15 report.
Moody’s placed Greece’s Ba1 bond ratings on review last week for a possible downgrade, citing heightened concerns about the country’s ability to cut its debt to “sustainable levels.”
Ireland’s credit rating was cut by Moody’s to Baa1 from Aa2 on Dec. 17 and the company said further downgrades are possible as the government struggles to contain losses in the country’s banking system.
Irish lawmakers voted last week to accept an 85 billion- euro aid package from European governments and the International Monetary Fund to help stabilize the country’s financial system. Greece earlier this year became the first euro nation to seek external support.
Moody’s Blues
Serbia Halts Euro-Linked Debt Issue; Talks Continue
Dec. 17 (Bloomberg) -- Serbia won’t hold a Dec. 22 auction of six-month euro-linked Treasury bills and the government will revisit the “issue in the coming period,” Deputy Finance Minister Vuk Djokovic said.
“There will definitely be no auction on Dec. 22,” Djokovic said in a phone interview today. Ministry spokesman Zoran Ciric said the finance minister and the central bank governor are holding talks to “harmonize their positions” on the matter.
Branislav Toncic, the head of the Debt Management Agency told Bloomberg News yesterday the issue had been approved and that the invitation for the auction was due to be published in today’s Official Gazette.
“I was informed about the change only this morning,” he said today by phone, adding that he is “considering resigning.”
Finance Minister Diana Dragutinovic told reporters at a press conference last night “she had to accept the market reality,” when asked if Serbia would issue the euro-linked debt, without mentioning that the Dec. 22 auction had been canceled. On Dec. 10, Dragutinovic said the government would have preferred to index new debt to inflation.
The central bank wants to cut Serbia’s reliance on the euro and make the economy less susceptible to exchange-rate fluctuations and any euro-indexation isn’t “the most fortunate solution,” central bank Governor Dejan Soskic told the Serbian Chamber of Commerce today.
Reports that the government had decided to go with the euro-linked debt issue triggered the dinar’s 2.6 percent rise in four consecutive working days this week. The currency fell 1.4 percent in Belgrade today, trading at 105.80 to the euro at 4 p.m., according to Bloomberg data.
Serbia debt Issue
Waiting for another $2.00 dollar swing trade on GNW
Genworth Financial Schedules Fourth Quarter Earnings and Investor Update for February 2
Genworth Financial, Inc. today announced that it will reschedule its investor update for February 2, 2011 at 9 a.m., concurrent with the company's communication of fourth quarter results.
This change is being made in order to provide investors with a more comprehensive update on progress across a number of ongoing strategic initiatives and to enable the incorporation of fourth quarter performance into the presentation of its financial targets.
Genworth also recently issued $400 million of senior debt and today announced that it used those proceeds, along with available cash, to repay all of the remaining outstanding borrowings under its credit facilities.
Following these actions, Genworth has approximately $975 million of cash and short term securities at the holding company, well in excess of its scheduled debt maturities in 2011 and 2012, with no debt maturities in 2013
Fourth Quarter Earnings
Genworth Financial (GNW) Showing Bullish Technicals But Could Fall Through $12.81 Support
Genworth Financial Inc (NYSE: GNW) closed Tuesday's trading session at $13.03. In the past year, the stock has hit a 52-week low of $10.26 and 52-week high of $19.36. Genworth Financial stock has been showing support around $12.81 and resistance in the $13.45 range.
Technical indicators for the stock are Bullish and S&P gives GNW a positive 4 STARS (out of 5) buy rating. For a hedged play on this stock, look at the Jun '11 $12.00 covered call for a net debit in the $10.86 area.
That is also the break-even stock price for this trade. This covered call has a duration of 185 days, provides 16.65% downside protection and an assigned return rate of 10.50% for an annualized return rate of 20.71% (for comparison purposes only). Genworth
Financial does not pay dividends at this time.
Bullish Technicals
Moody’s Credit Watch Parade Continues with Greek Banks.
Moody’s Investors Service, which now has Ireland, Spain and Greece on watch for potential downgrades, also announced today that the deposit and debt ratings of six Greek banks are also in play.
National Bank of Greece, EFG Eurobank, Alpha Bank, Pireaus Bank, Agricultural Bank of Greece and Attica Bank are also now under review, with the standalone bank financial strength of NBG, EFG Eurobank and Alpha also in question.
Moody’s said the move was an extension of its review of the nation of Greece itself, which, if it were to be downgraded, could negatively affect its ability to support its banks.
Moody’s Parade
Greece Accelerates Real-Estate And Asset Privatizations
ATHENS (Dow Jones)--Greece will speed up its privatization of real-estate and other assets, the finance ministry said Thursday, following a decision by the interministerial privatization committee.
Greece plans to raise EUR7 billion between 2011 to 2013 from privatizations, as promised to its international lenders, to slash high budget deficits and a sizeable national debt.
Privatizations were one of many conditions imposed on the debt-laden Mediterranean state by the International Monetary Fund and the European Union for the provision of a EUR110 billion bailout to stave off certain default.
"The government is determined to achieve its target with absolute transparency while safeguarding the public interest, promoting reforms and restructuring in sectors that can contribute to growth and competitiveness," the finance ministry said in a statement.
The ministry's special secretariat for asset restructuring and privatizations will immediately appoint advisors to do a quantitative and qualitative inventory of state-owned real estate assets, which is intended to be complete by June of 2011.
A special-purpose vehicle will be set up for the exploitation of the old Hellenikon airport. The finance ministry plans to take advantage of fast-track investment laws for its development.
Other than quickly appointing advisors and project managers, the ministry plans to securitize mature public real-estate assets, with the resulting special-purpose vehicle to be listed on the Athens Stock Exchange.
In terms of privatizing state holdings in companies, the ministry is set to announce the appointment of legal and financial advisors soon to extend the concession for the Athens International Airport, the sale of a stake in natural gas supplier DEPA and the natural gas network operator DESFA. It will also look for a strategic investor for Hellenic Defence Systems (EAS).
The ministry is also looking for advisors on a long list of state holdings. These include the heavily indebted railway operator Trainose, Monte Parnes Casino, water utility companies EYDAP and EYATH, and nickel miner Larco.
The state also hopes to develop marinas close to 850 regional airports to boost tourism, as well as looking at the sale of 11 regional airports, the unbundling of the Loan and Consignment Fund and the extension of concessions for Attiki and Egnatia motorways.
Privatizations
HOORAY! Europe Just Kicked The Can Down The Road
How often did we as young kids go down the street kicking a can?
"Kicking the can down the road" is a universally understood metaphor that has come to mean not dealing with the problem but putting a band-aid on it, knowing we will have to deal with something maybe even worse in the future.
While the US Congress is certainly an adept player at that game, I think the world champions at the present time have to be the political and economic leaders of Europe.
Today we look at the extent of the problem and how it could affect every corner of the world, if not played to perfection. Everything must go mostly right or the recent credit crisis will look like a walk in the Jardin des Tuileries in Paris in April compared to what could ensue.
From the point of view of not wanting to so soon endure another banking and credit crisis, we must applaud the leaders of Europe. The PIIGS collectively owe over $2 trillion to European and US banks. German, French, British, Dutch, and Spanish banks are owed some $1.5 trillion of that by Portugal, Ireland, Spain, and Greece by the end of June, 2010. That figure is down some $400 billion so far this year, which means that the ECB is taking on that debt, helping banks push it off their balance sheets. For what it's worth, the US holds, according to the Bank for International Settlements, about $353 billion, or 17%, of that debt, which is not an inconsequential number.
Robert Lenzner notes something very interesting about the latest BIS report, out this week:
"What's curious, though, is that for the first time the BIS has broken out a new debt category termed 'other exposures, which it defines as 'other exposures consist of the positive market value of derivative contracts, guarantees extended and credit commitments.' These 'other exposures' - quite clearly meant to be abstruse - amount to $668 billion of the $2 trillion in loans to the PIIGS.
"So, bank analysts everywhere; you now have to cope with evaluating derivative contracts that could expose lenders to losses on sovereign debt. Be on notice!"
What did I write just last week? That it is derivative exposure to European banks that is a very major concern for the world and the US in particular. It is not just a European problem. I predicted in 2006 that the subprime problem would show up in Europe and Asia. This time around, European banks present a similar if not greater risk to the US.
A collapse of a major European bank could trigger all sorts of counterparty mayhem in the US banking system, at least among our major investment banks. And then people would want to know which bank was next. This is yet another reason why the recent financial-system reform was not real reform. We still have investment banks committing bank capital to derivatives trading overseen by regulators who don't really understand the risk. Who knew that AIG was a counterparty risk until it was? Lehman was solid only a month before until it evaporated. On paper, I am sure that every one of our banks is solid - good as gold - because they have their risks balanced with counterparties all over the globe and they have their models to show why you should go back to sleep.
Kicking the Can Down the Road
And that is why I applaud the ECB for stepping in and taking some risk off the table. We do not know how close we came to another debacle. Does anyone really think Jean-Claude Trichet willingly said, "Give me your tired, your poor, your soon-to-default sovereign debt?" Right up until he relented he was saying "Non! Non!" He did it because he walked to the edge of the abyss and looked over. It was a long way down. Bailing out European banks at the bottom would have cost more than what he has spent so far. It was, I am sure, a very difficult calculation.
I remember writing a letter not so long ago, quoting Trichet on that very topic. He was vehemently opposed to any ECB involvement in something that looked like a bailout. And then he wasn't. I do hope he writes a very candid memoir. It will be interesting reading. The reality is that there was nowhere else to turn. There were no mechanisms in the Maastricht Treaty for dealing with this situation. What I wrote the following week (or thereabouts) still stands. This was and is a bailout for European banks in order to avoid a banking crisis. Many European banks, large and small, have bought massive sums on huge leverage of sovereign debt, on the theory that sovereign debt does not default. Some banks are leveraged 40 to 1!
The ECB is now earnestly continuing to kick the can down the road, buying ever more debt off the books of banks, buying time for the banks to acquire enough capital, either through raising new money or making profits or reducing their private loan portfolios, to be able to deal with what will be inevitable write-downs. It they can kick the can long enough and far enough they might be able to pull it off.
There is historical precedent. In the late '70s and early '80s, US banks figured out that if you bought bonds from South American countries at high rates of interest and applied a little leverage, you could practically mint money. And everyone knew that sovereign countries would not default. That is, until they did.
Technically, every major bank in the US was insolvent then. I mean really toes-up, no-heartbeat bankrupt. So what happened? Mean old Paul Volker - he who willingly plunged the US into recession to vanquish the specter of inflation - allowed the banks to carry those South American bonds on their books at full face value. He kicked the can down the road. And the banks raised capital and made profits, shoring up their balance sheets.
In 1986 Citibank was the first bank to begin to write down those Latin American bonds. Then came Brady bonds in 1989. Remember those? Brady bonds were as complicated as they were innovative. The key innovation behind their introduction was to allow the commercial banks to convert their claims on developing countries into tradable instruments, allowing them to get the debt off their balance sheets. This reduced the concentration risk to the banks. (To learn more about Brady bonds, and a very interesting period, go to http://en.wikipedia.org/wiki/Brady_Bonds and also google "Brady bonds.")
So it worked. Kicking the can down the road bought time until the banks were capable of dealing with the crisis.
Different Cans for Different Folks
The ECB has chosen a different way to kick that old can (and a large and noisy one it is!), but it is not without consequences. Trichet has let it be known that dealing with sovereign-debt default issues should not be the central bank's problem, it should be a problem for the European Union as a whole. And I think he is right, for what that's worth.
If the ECB were to keep this up, even in a deflationary, deleveraging world it would eventually bring about inflation and the lowering of the value of the euro against other currencies. That is not the stuff that German Bundesbankers are made of. So they have been pushing for a European Union solution.
At first, the political types came up with the stabilization pact in conjunction with the IMF. But this was never a real solution, other than for the immediate case of Greece ... and then Ireland. It has some real problems associated with it. It could deal with Portugal but is clearly not large enough for Spain. It is worth nothing that the political leaders of both the latter countries have loudly denied they need any help. Hmm. I seem to remember the same vows just the week before Ireland decided to take the money.
One of my favorite writers, Michael Pettis penned this note:
"Its official - Spain and Portugal will need to be bailed out soon. How do I know? In one of my favorite TV shows, Yes Minister, the all-knowing civil servant Sir Humphrey explains to cabinet minister Jim Hacker that you can never be certain that something will happen until the government denies it."
Ultimately, the EU has three options. But before they get there - or maybe better said, before there is a crisis that forces them to get there - they will continue to kick the can down the road. They are really very good at it. We will consider those options in a little bit; but first, let's look at just one aspect of the problem that will lend some context to the various paths among which they must choose. And that will take us on a detour back to our old friend Greece, where this all started.
More Debt is NOT the Solution to Too Much Debt
Greece is being forced into an austerity program in order to be able to continue to borrow money. But it has come with a cost. Unemployment is now at 12.6%, up from less than 7% just two years ago. And Greek GDP continues to slide. Let's look at some charts and data from my favorite slicer and dicer of data, Greg Weldon ( www.weldononline.com for a free 30-day trial).
Notice that Greek GDP is down over 7% for the last 9 quarters, and there is no reason to believe there will be a reversal any time soon.
A declining GDP is just not good for the country, but it also makes it more difficult for Greece to get back into compliance with its EU fiscal deficit-to-GDP requirements. The problem is that GDP is declining faster than the fiscal deficit. Normally, a country would devalue its currency (and thus its debt), maybe restructure its external debt (or default), and then try to grow its way out of the crisis.
Let's go back and look at what Iceland did, as compared to Ireland, which is trying to take on more debt to bail out its banks, that is, to bail out German and French and British banks.
This is what I wrote a few weeks ago, and it bears repeating:
Look at how upset the UK got when Iceland decided not to back their banks. Never mind that the bank debt was 12 times Iceland's national GDP. Never mind that there was no way in hell that the 300,000 people of Iceland could ever pay that much money back in multiples lifetimes. The Icelanders did the sensible thing: they just said no.
Yet Ireland has decided to try and save its banks by taking on massive public debt. The current government is willing to go down to a very resounding defeat in the near future because it thinks this is so important. And it is not clear that, with a slim majority of one vote, it will be able to hold its coalition together to do so. This is what the Bank Credit Analyst sent out this morning:
"The different adjustment paths of Ireland and Iceland are classic examples of devaluation versus deflation.
"Iceland and Ireland experienced similar economic illnesses prior to their respective crises: Both economies had too much private-sector debt and the banking system was massively overleveraged. Iceland's total external debt reached close to 1000% of its GDP in 2008. By the end of the year, Iceland's entire banking system was crushed and the stock market dropped by more than 95% from its 2007 highs. Since then, Iceland has followed the classic adjustment path of a debt crisis-stricken economy: The krona was devalued by more than 60% against the euro and the government was forced to implement draconian austerity programs.
"In Ireland, the boom in real estate prices triggered a massive borrowing binge, driving total private non-financial sector debt to almost 200% of GDP, among the highest in the euro area economy. In stark contrast to the Icelandic situation, however, the Irish economy has become stuck in a debt-deflation spiral. The government has lost all other options but to accept the E85 billion bailout package from the EU and the IMF. The big problem for Ireland is that fiscal austerity without a large currency devaluation is like committing economic suicide - without a cheapened currency to re-create nominal growth, fiscal austerity can only serve to crush aggregate demand and precipitate an economic downward spiral. The sad reality is that unlike Iceland, Ireland does not have the option of devaluing its own currency, implying that further harsh economic adjustment is likely."
This is what it looks like in the charts. Notice that Iceland is seeing its nominal GDP rise while Ireland is still in freefall, even after doing the "right thing" by taking on their bank debt.
Greek five-year bonds are now paying 12.8%. It is hard to grow your way out of a problem when you are paying interest rates higher than your growth rate and you keep adding debt and increasing your debt burden.
Each move to deepen government cuts in Greece will result in further short-term deterioration of GDP, which makes it even harder to dig out of the hole. And Greece is a particularly thorny problem. The taxi drivers are outraged that they might have to use meters. Why? Because that means someone could actually track the amount of money they take in. Government workers are striking over 10% pay cuts. And on and on.
It is the same song but with a different verse for the rest of the countries in Europe that have problems. While Ireland is very different from Greece, assuming massive debt in a deflating economy will only turn Ireland into an ever-larger burden unless they can get on the path to growth again. Ditto for Portgual, Spain, and....
Et Tu, Belgium?
One country after another in Europe is coming under pressure. This week the debt of Belgium was downgraded, and the accompanying note from Standard and Poor's observed that:
"Belgian's current caretaker government may be ill-equipped to respond to shocks to public finances. The federal government's projected 2011 gross borrowing requirements of around 11 percent of GDP leaves it exposed to rising real interest rates."
At some point, if a country does not get its fiscal deficit below nominal GDP (and this is true for the US as well!) it will run into the wall. Credit markets will no longer lend to it. In Europe, the lender has become the ECB, but that may - and I emphasize may - change with the establishment of a new authority for the European Union to sell bonds and use the proceeds to fund nations in crisis. Under the proposal, each nation would assume a portion of the total debt risk. That may be a tough sale, as it appears there will need to be a treaty change and then country-by-country votes for such a change.
It will also mean that countries that accept such largesse will endure a very stern hand in their fiscal affairs. This is potentially a very real surrender of sovereignty. Some countries may decide it's worth the price. Others, on the funding side of the equation, may decide they have to "take one" for the good of the European team.
This fund is to be launched in 2013, which gives EU leaders some time to flesh out the idea and sell it.
A second choice is for some countries to leave the euro but stay in the EU. Not all members of the EU participate in the eurozone. Leaving would be hugely messy. It is hard to figure out how it could be done without serious collateral damage. Even if Germany were to decide to be the one to leave, which they actually could, as the new German currency would rise over time, it would also mean their exports would be less competitive within Europe.
A third choice (which could be combined with the first choice) is radical debt restructuring. Convert Greek bonds into 100-year low-interest bonds, giving the Greeks (or Irish or Portuguese ...) the time and ability to service the debt, along with real controls on their spending. Of course, that is default by another name, but it allows the fiction. Something like Brady bonds. You hit the reset button and kick the can a long way down the road.
That choice too has political and economic consequences. Someone has to cover the losses on the mark-to-market for those bonds. Who takes the hit?
Let me close with this bit of insight from one of my favorite analysts, MartinWolfe of the Financial Times (www.ft.com):
"This leads to my final question: could the eurozone survive a wave of debt restructurings? Here the immediate point is that the crisis could be huge, since one restructuring seems sure to trigger others. In addition, the banking system would be deeply affected: at the end of 2009, for example, consolidated claims of French and German banks on the four most vulnerable members were 16 per cent and 15 per cent of their GDP, respectively. For European banks, as a group, the claims were 14 per cent of GDP. Thus, any serious likelihood of sovereign restructuring would risk creating runs by creditors and, at worst, another leg of the global financial crisis. Further injections of official capital into banks would also be needed. This is why the Irish have been "persuaded" to rescue the senior creditors of their banks, at the expense of the national taxpayer.
"Yet even such a crisis would not entail dissolution of the monetary union. On the contrary, it is perfectly possible for monetary unions to survive financial crises and public sector defaults. The question is one of political will. What lies ahead is a mixture of fiscal transfers from the creditworthy with austerity among the uncreditworthy. The bigger are the former, the smaller will be the latter. This tension might be manageable if a swift return to normality were plausible. It is not. There is a good chance that this situation will become long-lasting.
"Still worse, once a country has been forced to restructure its public debt and seen a substantial part of its financial system disappear as well, the additional costs of re-establishing its currency must seem rather smaller. This, too, must be clear to investors. Again, such fears increase the chances of runs from liabilities of weaker countries.
"For sceptics the question has always been how robust a currency union among diverse economies with less than unlimited mutual solidarity can be. Only a crisis could answer that question. Unfortunately, the crisis we have is the biggest for 80 years. Will what the eurozone is able to agree to do be enough to keep it together? I do not know. We all will, however, in the fairly near future."
My only small disagreement is on whether it will be in the "near future." World champion can kickers can put off the day of reckoning longer than you might think. On the other hand, when that day does come, it will seem to have come so quickly and with so little warning. There is no way to know what the markets will do about this, so it pays to stay especially vigilant and flexible.
Africa, Old Friends, and Pensacola
In a former life that seems ages ago (in the late '80s), I banged around Africa for a few years, chasing the dream of starting a cellular telephone company somewhere. I had actually won some lotteries here in the US and wanted to see if I could get lightning to strike twice. I went to Africa because no one else at the time was paying attention. I was actually in 15 countries, researching the possibilities and working on licenses. I even got one (which was not good luck, but that is another story).
In the process, I found and hired a US ex-pat attorney based in Kinshasha, Zaire, named Pat Mitchell. He introduced me to lots of people all over, but in particular I became good friends with Kevin O'Rourke, a raconteur with the Irish gift (shared with Pat) of spinning yarns. Both of these guys were larger than life and just fun as hell. It was one of my favorite times in life. A learning experience to be sure, but as I look back on it now, I have fond memories. If I had gone a few years later, I might have had more luck. Those African franchises now are worth multiple tens of billions. Oh well.
Yesterday, Pat called me from his home in Pensacola, Florida, where he is now based, and told me that Phil had just flown in and that I should come on down. I have been threatening to visit Pat for a few years, but time and stuff just happens. It goes so fast.
I sat and thought for a few minutes and realized there was nothing on my schedule that could not wait 24 hours. American has a straight shot in less than two hours. So Saturday night I will be in some bar in Pensacola with my amigos, telling stories and maybe a few lies, talking about the old days, and remembering that it is friendships over the years that make the journey worthwhile.
It is time to hit the send button. I intend to get a good night's sleep, as I suspect I will need it. Have a great week.
Your somewhat nostalgic for Africa analyst,
John Mauldin
John@FrontLineThoughts.com
kick the can
Deutsche Bank Sets ASE?s 2011 Target-Price At 1860
Deutsche Bank predicts 2011 will be a recovery year for the U.S. and also a favorable year for stock prices, according to its report “How the West will win”. It also sets a target- price of 1,860 for the Greek market.
More specifically, Deutsche Bank’s rating for Athens Stocks is set as “neutral”, set a target- price of 1860 and considers OPAP’s and HTO’s shares as “top pick” and “bottom pick” respectively.
“Sovereign risks could continue to impact sentiment in the short term, but we think that upside surprises to growth are likely to lift this high beta market”, Deutsche Bank notes.
The Bank expects 2011 to be the year of the burgeoning US recovery. US growth rate is predicted to 3.0%, driving global growth to nearly 4.0%. It also forecasts earnings on the Stoxx 600 to grow 12% to 23.5 in 2011.
The biggest macro risk is a financial dislocation caused by the euro area fiscal crisis. DB believes that Spain will not be a victim of the crisis, and the global economic recovery will remain intact.
“The equity outlook also appears promising beyond 2011. The credit impulse has long-term implications. New borrowing levels globally are very low at present, and will have to rise substantially to reach equilibrium levels. This normalization will take years, and over that time the credit impulse will on average be positive”, the bank states.
A positive credit impulse has in the past been associated with GDP growth that is stronger than potential. “We believe we could be in for a period of sustained above-trend GDP growth, which is not priced into equity markets at present”, Deutsche Bank added.
Reference
Greek Banks Face Months Of Heavy Loan Loss Provisions Ahead
ATHENS (Dow Jones)--Profit at Greece's top blue chip banks' is likely to flounder under the continuing burden of heavy provisions until at least the middle of next year as the Greek economy stumbles its way through a third year of a grinding economic recession.
Share prices for the country's four leading lenders--National Bank of Greece SA (NBG), EFG Eurobank Ergasias SA (EUROB.AT), Alpha Bank SA (ALPHA.AT) and Piraeus Bank SA (TPEIR.AT)--will continue to suffer, say analysts, amid deteriorating sentiment in sovereign bond markets and concern over the banks' precarious liquidity.
In the past week, the top four Greek banks reported third-quarter results which were hammered by rising provisions for bad loans--even if the results broadly met market expectations and provided few surprises.
"The top four Greek banks in the third quarter produced a total combined net profit of EUR164 million," said senior financials analyst Panagiotis Kladis of National Securities. "But all the provisions taken together add up to an overwhelming EUR1.06 billion, which has swamped their performance."
Greece is in the midst of its first recession in more than 15 years with the economy expected to shrink by 4.2% this year and an average 3% next year, although a modest recovery is expected to take root in the second half of 2011.
The recession, aggravated by ongoing Greek government austerity measures, has led to rising unemployment and business bankruptcies and, in turn, an increase in bad loans. According to the latest data from the central bank, non-performing loans in the first quarter rose to an average 8.2% rate for Greek banks overall, up from a 7.7% rate at the end of 2009. That has forced the banks to raise their provisions quarter after quarter.
"Because we don't expect that Greece will return to growth until mid-year in 2011 and there is a two-quarter lag on non-performing loans, we expect that non-performing loans won't peak until the beginning of 2012," said Vassilios Psaltis, the chief financial officer of Greece's third-largest bank Alpha.
A return to growth and a visible peak in bad loans, say analysts, would allow the banks to start reducing the amount they set aside and begin booking bigger profit.
"If non-performing loans will peak at the beginning at 2012, that means provisions will peak in about the third quarter of 2011 due to a decelerating pace of NPL formation," said Kladis.
Not surprisingly, the Athens banking sub-index has plunged 53% since the start of the year on the deteriorating balance sheet fundamentals.
Investors have also taken fright at the prospect of an eventual restructuring in Greece's sovereign debt--something the government says is not on the cards, but which financial markets reckon is likely and has led to a plunge in the prices of Greek government bonds, or GGBs.
Given that the Greek banks have significant GGB portfolios, those market losses have also weighed on earnings, especially for the banks that are primary market dealers in GGBs.
National Bank of Greece this week said that its trading losses for the third quarter remained very high, at EUR75.4 million, marking a full year of losses for its trading department.
"NBG's Greek division has been loss-making for four quarters, entirely due to Greek government bond trading, which should at some point revert to a small profit," said analyst Niall O'Connor of Credit Suisse.
Liquidity remains another problem. Greek banks still remain heavily dependent on the European Central Bank for liquidity, despite recent efforts to reduce that dependence and re-enter the interbank market.
According to the latest ECB data, funding to Greek banks eased slightly to a gross level of EUR92.4 billion at the end of October, down from EUR94.3 billion from the previous month.
But that has come at a cost to profits. Since the start of the year, Greek banks have been trying to attract new depositors, or to prevent existing ones from leaving by raising deposit rates.
At the same time, though, Greece's recession has also dampened demand for new loans. This has delivered a double-whammy to the banks. On the one hand, growth in top line net interest income has sputtered along with the economy, while net interest margins--the difference the bank earns on loans over what it pays on deposits--have shrunk.
For example, the net interest margin at the end of the third quarter for the most leveraged of the top banks, Eurobank, fell to 2.66% from 2.78% for the same time last year. Greece's second-largest lender said this was because of more competition in the system for deposit gathering.
To be sure, Eurobank also said net interest margins are improving, and the bank's management told analysts in a conference call Monday that non-performing loans have already peaked and are now on a downtrend.
Others are less sanguine.
"Eurobank management sees the glass half-full... and gave a relatively upbeat assessment of future trends about improving net interest margins and [arguing] that NPLs will sustain their downward trend," said UniCredit analyst Tania Gold. "We believe it is too early in the economic cycle to agree with this outlook."
Six Greek banks warned of Moody's downgrade
(AFP) – 11 hours ago
ATHENS — Ratings agency Moody's on Friday said it had placed the deposit and debt standing of six Greek banks, including several leading lenders, on review for a possible downgrade after similarly placing Greece's own sovereign ratings on negative watch.
"Moody's Investors Service has today placed on review for possible downgrade the deposit and debt ratings of ... National Bank of Greece (NBG), EFG Eurobank Ergasias, Alpha Bank, Piraeus Bank, Agricultural Bank of Greece (ATE) and Attica Bank," the agency said.
"In addition, the standalone bank financial strength ratings (BFSRs) of NBG, Eurobank and Alpha, have been placed on review for possible downgrade," Moody's added in a statement issued in Limassol.
The move came a day after the agency placed Greece's sovereign bond rating, currently at Ba1, or junk status for investors, on a similar downgrade watch.
The two measurements are linked, as a lower grade on Greek government bonds could increase pressure on banks that hold these maturities, Moody's said.
"A possible downgrade of the government's rating could lead to a downward adjustment to the country's systemic support indicator (SSI), which is the measure Moody's uses to determine bank rating uplift," the agency said.
In particular, it noted that the total government exposure of NBG, Eurobank and Alpha ranges from 80 to over 200 percent of their capital base.
NBG, Eurobank, Alpha and ATE, which rank among Greece's leading lenders, also had their ratings cut by Moody's on June 15, a day after it had pulled down Greece's sovereign grade by four notches, from A3 to Ba1.
A month later, four of the banks named on Friday had passed with varying success EU-wide stress tests designed to show resilience to another financial crisis.
State-owned ATE failed to make the grade and Attica was not in the lineup.
Greece is caught in a debt crisis and a snowballing recession that followed a scare on the accuracy of government statistics and a resulting spike in its borrowing costs earlier this year.
It was forced to appeal for a massive loan from the European Union and the International Monetary Fund, in return for which it is currently pursuing tough and unpopular reforms to reduce a public deficit that stood at 15.4 percent of output last year, over five times the allowed EU level.
Ironically, Moody's noted Friday that "the additional fiscal adjustments now being implemented by the government may place further strain on the banks' asset quality."
news link
picked up 1K shares today to see which way the crow will fly....
Ireland - Who bankrupted Ireland?
Now across Europe the great blame game will rumble back into play. Our banks, your banks, their banks, or is it your feckless householders or ours, certainly can't be theirs, they're still doing well in Germany. Expect lots more national stereotypes to be wheeled out for ritual defamation.
So let's ask who it was took a dump in Ireland?
First, the suspects.
Ireland has three big insolvent banks and several other smaller, equally insolvent financial institutions we won't bother to mention by name.
Ireland also has a large number of subsidiaries of European, British and American Banks.These subsidiaries are often registered as Irish and therefore on Ireland's tab not the nation of the parent bank. This often gets forgotten in the excitement. But it is KEY.
Ireland also houses a very large chunk of the world's Special Investment Vehicles (SIV's) which are the shell companies which house trillions and trillions of dollars and Euros and pounds worth of Collateralized Debt Obligations (CDOs). These are what Warren Buffett described as "weapons of financial mass destruction'" And they are in their own way as hard to find and disarm as the ones we had a fraudulent war over. Anyway I digress.
These CDOs, in turn, house an equal or greater nominal value of Credit Default Swaps (CDS) written upon the CDOs. I can't tell you the figures because only the Irish Stock exchange has the otherwise completely confidential paper work and I have serious doubts (from what I have been told in the last week by an insider with first hand knowledge) that the Irish regulator and stock exchange have much of a clue themselves.
So, to the crime.
Some of this will, for legal reasons have to be done in generalized terms with names left out to protect the Innocent - me. But to start with let's be reasonably specific. Germany was and is very very angry with Ireland for ruining its banks. That is what a German banker told me this week. She spoke on the guarantee of anonymity as she would suffer all sorts of legal problems if she was identified. I am sorry that this leaves you just having to trust that I'm not just making this up, but I hope many of you know me well enough to go with it.
In fact it was rumoured in German banks that at the time of the collapse of Hypo Real Estate, an angry call was made from the German Premier to the Irish, to complain, to which the answer was ... well it was short. Now this is nothing but a rumour. But it was a rumour in Germany which indicates that some in Germany were and perhaps still are very angry and blame Ireland.
So are they right in their blame?
The same banker told me this. She was aware of instances, and so was everyone else, of banks, German banks, who used to fly their people from Germany to Ireland in order to do deals that were not allowed in Germany.
German banks set up subsidiaries in Ireland. These subsidiaries were often registered as completely Irish companies. Back in Germany the German regulator (BaFin) had strict and enforced rules. Very good rules for the most part. Far, far better than Britain or Ireland. But these good rules, properly enforced meant German banks could not do many of the most lucrative and in hind sight reckless kinds of deals.
So the German banks would do the figures and work it all out in Frankfurt, then send a banker over to Ireland, get them to sit at 'their' desk in Ireland, in the Irish bank, and do the deal there. The legal registration of the deal and the 'oversight' were all Irish. This is known in the financial world as jurisdictional arbitrage. You and I would call it cheating if we were feeling charitable and lying if we weren't.
The Banker flies back to Germany, where the German bank hasn't done any deal, and therefore has done nothing wrong. The deal was properly overseen and approved by the appropriate Irish financial authorities and the profits would be banked at a very happy Irish bank. If any management of the 'deal' was required an Irish company would be hired, there are many, and an Irish manager often living not far from Cork, would 'manage' the money in and out. I have spoken to such people. Usually I can hear the sweat coming off them as they ask how I got their number and where did I get my information. To which I would reply that the Internet is a very large place and never, never forgets.
Now my question to you is this. If it's a German bank and a German banker doing the deal is it Germany who made the mess? Or, equally justified, if the deal was actually done in Ireland in an Irish company allowed and no doubt welcomed by Ireland's financial world, and overseen by Ireland's wonderful regulators, is it Ireland who made the mess?
Should Germany, have pulled the plug on this racket? Should Ireland? Whose losses when they finally came, are they?
If the bank is registered in Ireland as an Irish bank/business, then the loss is on Ireland's tab. Depfa was an Irish bank. Just months before its collapse in 2007 it was bought by Hypo, a German bank. Had that not happened the €180 billion euro loss at Hypo Real Estate would have been Ireland's loss, dwarfing all other losses. Why was Hypo Real Estate bought by Germany at that moment?
I can't say for sure. But think about this. Sachsen Landesbank collapsed due to around $30-40 billion in bad sub prime loans its Irish subsidiary called Ormond Quay had made in the U.S. OrmondOrmond's collapse caused the immediate collapse of one of Germany's Landesbanks. Which suddenly sent ripples of fear through all the other Landesbanks as the world woke up to the rampant idiocy that the Landesbanks had been getting up to ...in Ireland.
Germany had to step in and bail Sachsen out. Now lets think about Depfa. Depfa started life as a German bank. It became listed in London and then in 2002 moved to and registered itself in Ireland in the newly set up IFSC (Irish Financial Services Centre) This was like a legal gated community or financial maquiladora. The IFSC was in many ways supposed to be the regulator of what went on in its grounds. I leave you to decide how well it must have done.
By the way the IFSC was created by Dermot Desmond with the help of Charles Haughey.
So Depfa is now an Irish registered bank. But it has very close ties to Germany and many German banks and landesbanks. If ever Depfa went down it would certainly have plunged a vast swathe of German banks and landesbanks into a storm of insolvency, that would have dwarfed the fall out from SachsenLB. . Depfa must not be allowed to go down.
So when in 2007 Depfa was suddenly bought by Hypo Real Estate was it because news of financial problems hadn't reached Germany and they bought it because they thought it was a great deal and were cheated by those crafty Irish? OR might Germany have known that a massive crisis was ticking away in Depfa and could see the clock was running down close to zero hour, and realized that if left in Ireland it would not, could not be rescued by Ireland and so would be left to start a chain reaction that would move straight to Germany? If they thought the latter, do you think it likely that Germany would have just said "Oh Scheisse" and sat waiting for Armageddon, or do you think they would have taken emergency action to bring Depfa under German ownership and jurisdiction where German pockets were deep enough to bail it out and thereby save the rest of Germany's banking system?
You decide.
So let's return to our question? Whose fault? Would Germany be right to be bitter about Depfa/Hypo and others? Or does the blame lie with the Germany banks and Bankers who flew to Ireland to do their mess? Is it Ireland's banks mess or Germany's? I don't think we can disentangle the blame.. maybe when the Irish Banks' books are finally opened we could. But I bet you no one outside the top bankers and politicians, the people who oversaw the creation of the bomb in the first place, will ever be told what's really in there.
I can't say and neither can you, if the losses are Irish or German. But we can say, the losses never were, and should not ever be, yours and mine. We, the people, who were told nothing, were not asked nor consulted, whose laws were either ignored, set aside or re-written, we should not be expected to pay for those losses now.
They are bankers losses. It is NOT a question of Irish or German. It is question of wealthy bankers from all countries not just Germany (almost every nation, Germany, America, Russia, France Britain, we did dirty work in Ireland) and their corrupt Irish helpers versus the people. It is not a question of should the Irish people or the German people pay. Neither people should. It should be the bankers who made the losses who should take them.
DO NOT allow the bankers to set us against each other as a cover for their crime and guilt.
For anyone interested in a very different take on the financial crisis, the failure of the policy of bailing out the banks and what it means for us, the book, The DEBT GENERATION is now finished and shipping.
Now across Europe the great blame game will rumble back into play. Our banks, your banks, their banks, or is it your feckless householders or ours, certainly can't be theirs, they're still doing well in Germany. Expect lots more national stereotypes to be wheeled out for ritual defamation.
I am not saying certain nations do not have their own governmental debt problems. They do. Some of them are large and are due to stupidity having mated with greed. BUT, an insolvent nation is not the end of the world. There have been many insolvent nations and we and they are still here.
What has made this a crisis is that almost exactly as banks knowingly lent out money to people whose only prospect of paying them back was if the good-time bubble continued for ever, so the banks have ALSO been just as blindly avaricious when it came to lending to nations whose prospect similarly rested on the bubble never bursting. And these TWO streams of greedy stupidity have flowed together and flooded us all.
Nations refused to let their banks go bust because their sclerotic political systems had some time before been captured and suborned by their financial elite. The common state of affairs in any banana republic. Our banana nations issued a torrent of new debt to add to what they already had, in order to have the cash to 'save' the banks. Other banks, and sometimes even the same ones as were being 'rescued', bought this debt (which for a bank is the same as lending money).
The result is that insolvent banks became the creditors of the nations trying to save them (if this sounds incredible read about Greek banks and who is exposed to Greek sovereign debt losses) while the nations, who were already in trouble, sank under a mud slide of their own creation, of new debts taken on in the name of saving unsaveable banks.
Together this incestuous imbecility bound nations and private banks into a tight suicide pact. Now this might not have been so bad if the banks and the nations had been paired off neatly within national borders: Greek banks tied to Greece etc. But the ties run across national boundaries.
The stupid nations are in the so called periphery of Europe the greedy banks are at the centre. Thus we have the very worst of all situations thanks to the unstinting genius of our bankers hand in glove with the eager connivance of our politicians - who were simply and principally trying to make sure that they would get a lucrative consulting or board member sinecure after they left politics.
This suicide pact suited the banks in two ways. Obviously they enjoyed being bailed out. But it also laundered their debt into nations so that the whole crisis could be re-branded in a much more bank friendly way. Away went the bank debts and in came sovereign debts. Same money, same debts, new packaging.
So let us be clear. The reason Ireland is a crisis, Greece was and will be once again and Portugal may soon become one, is because if they or their banks are allowed to declare bankrupcy, it wil bring down Germany's and France's banks. It is the debts of the banks in the central nations which are being bailed out whenever Ireland gets ECB money. The money goes from Ireland straight to Germany and France. With every bail out, the Irish people are being forced to pay the bad debts of German and French banks as well as their own.
Why not have Germany and France sort out their own banks? How much nicer to launder the debts and the blame through someone else.
No one is clean in this crisis. No nation, no people, no bank. But let us at least try to be clear and honest with ourselves even if such honesty is constitutionally impossible for our financial and political elites.
Ireland have a bank run on their hands and they now do not have much time in which to stop it running out of control.
Yesterday I argued that Ireland was resisting a bail out because it does not want to be forced to raise its corporation tax. If Ireland is forced to do it, then all those foreign corporations who have headquartered themselves in Ireland will leave. And when they do they will take their corporate cash flow with them adding to what is now officially a run on Ireland's banks.
According to the Irish Independent, in the last three months Bank of Ireland reported corporations had withdrawn €10 billion and Allied Irish Bank was similar. Today Irish Life and Permanent said its corporate customers has withdrawn 600m Euros which is 11% of their deposit base. No financial institution can withstand that amount of blood loss for long. Once your depositors start wanting their money back you can be sure the bond holders will not lend you another brass farthing.
According to Reuters Breakingview, who have been up all night with their calculators, to 'rescue' Ireland's three big insolvent banks, Anglo, Allied and Bank of Ireland, will require €100 billion. Which means the Irish people are barely half way there. Ireland CANNOT in this universe or any nearby ones, afford this amount.
Ireland has a simple choice. Either they admit that the big three banks ARE TERMINALLY INSOLVENT or Ireland itself becomes insolvent in a stupid, doomed and traitorous attempt to deny reality. I say traitorous because if the cabal of wealthy conspirators continue to run Ireland for their personal profit, they will ruin the lives of every other Irish man woman and child.
When other countries are lining up to get a bail out Ireland is fighting tooth and nail to avoid one. Why?
Does it not seems a little strange to you? I want to suggest that many experts are looking in the wrong place for an answer.
A major part of the reason Ireland is resisting a European led bail out is because of the German led enthusiasm for increasing Ireland's corporate tax rate. The connection may not seem immediately convincing so let me see if I can offer you an argument.
Ireland became the Celtic Tiger for three reasons. First it has a very low rate of corporate tax. Second it had already in place lots of reciprocal tax agreements to avoid any double taxing. So profits booked in Ireland into an Irish subsidiary of a foreign bank or corporation would only get a low rate of tax applied. Third, there was an incredibly lax regulatory system, if one can call a blind eye a system.
Take a look at where the big American corporations have their European or even world-outside-of-America HQ. Ireland every time. The reason is the low tax rate. Very, very large US Companies which I could name but won't for legal reasons and ask you to think of them yourself, as well as a host of Russian companies are based or have their HQ in Ireland for tax reasons. Companies making sales in Taiwan, India or Spain were and still are booking their profit in Ireland.
The Irish exchequer benefits from tax revenue it would never get otherwise. Because without meaning any disrespect there would be few reasons for them to chose Ireland were it not for the tax rates. The company benefits from low taxes and ease of repatriation of the profits back home - where ever that might eventually be.
The Irish banks, both Irish ones such as Allied Irish, Anglo Irish and BoI, as well as Irish subsidiaries of European and American banks would benefit by these huge profits passing through their books giving them huge liquidity and wonderful capital holdings. Much of the money may have only been passing through but like a flow through a pipe, the pipe was always delightfully full. And some of the money stayed.
And the blind man's buff oversight regime meant all sorts of wonderful things could be done in Ireland that home regulators might not allow. More on this in a later post. Put these things together and you have the reasons for and the engine of Ireland's growth and success. And it is the hope, the only hope, of both the previous government of Ireland and its present one, that this miraculous money making magic can be restarted.
Now imagine for a minute that one part of this system, the tax part were to be discontinued. What do you think would happen?
I think Ireland would find that banks and corporations might not be so keen on staying in Ireland and new business might not even look at them. And yet this is what some in mainland Europe are advocating as part of the 'concrete roadmap' they want Ireland to show them as the necessary plan for recovery in order to get a bail out.
On one level you could say it is perfectly reasonable that those who might bail Ireland out should want to see Ireland increasing its tax revenue. Fair enough, but there is also the very obvious and transparent aspect of cutting off Ireland's financial edge and feathering their own nest. Germany and others force Ireland to stop its low tax regime. A regime that undercut their own tax rates. Ireland is forced to raise it tax rate and suddenly Germany and others say, "Well why not some over to us now."
This, I think, is a major part of what is going on in the bail out discussions. This is why Ireland does not want to agree the bail outs being offered.
This also explains one other thing. It explains why so many banks and private corporations were, shall we say 'keen' for Ireland to offer its blanket bank guarantee back in '08. If the banks had gone under those companies would have lost all the revenue they had in those banks and found their world wide banking and corporate structures paralysed. Imagine a very large software company finding its bank, where it had many billions on deposit suddenly not only frozen but GONE. Imagine the same corporation finding it had a world non-US HQ in a country where it had no banking facilities. Imagine what would happen to its own cash flow.
I don't think it unreasonable to imagine said company, and many others you will find listed as domiciled in Ireland, getting on the phone and applying a little pressure, explaining a few consequences. Call this conspiracy if you wish. I think it is more just thinking through the natural consequences and asking yourself what you would do.
This same companies are still in Ireland. But I seriously wonder if their cash is still going through Irish banks in quite the same volume. It may be given that till now the tax benefits are still as attractive as they were. But I would also wonder if part of the reason the Irish banks never seem to heal but seem instead to just bleed and bleed, is because as fast as they are given money by the state, the companies are withdrawing their capital to more stable places. Corporate capital flight on a very large scale.
I think the bail out is being used to try to steal business away from Ireland. We can argue about whether that business has done Ireland any good but you can still see why Irish banks and politicians might feel angry and try to resisit.
Not a nice to feel your friend's knife in your back. Private Bank debt laundering
This is NOT and never was a sovereign debt problem. It has always been a private bank problem which is merely being laundered through some unfortunate nations.
I am not saying certain nations do not have their own governmental debt problems. They do. Some of them are large and are due to stupidity having mated with greed. BUT, an insolvent nation is not the end of the world. There have been many insolvent nations and we and they are still here.
What has made this a crisis is that almost exactly as banks knowingly lent out money to people whose only prospect of paying them back was if the good-time bubble continued for ever, so the banks have ALSO been just as blindly avaricious when it came to lending to nations whose prospect similarly rested on the bubble never bursting. And these TWO streams of greedy stupidity have flowed together and flooded us all.
Nations refused to let their banks go bust because their sclerotic political systems had some time before been captured and suborned by their financial elite. The common state of affairs in any banana republic. Our banana nations issued a torrent of new debt to add to what they already had, in order to have the cash to 'save' the banks. Other banks, and sometimes even the same ones as were being 'rescued', bought this debt (which for a bank is the same as lending money).
The result is that insolvent banks became the creditors of the nations trying to save them (if this sounds incredible read about Greek banks and who is exposed to Greek sovereign debt losses) while the nations, who were already in trouble, sank under a mud slide of their own creation, of new debts taken on in the name of saving unsaveable banks.
Together this incestuous imbecility bound nations and private banks into a tight suicide pact. Now this might not have been so bad if the banks and the nations had been paired off neatly within national borders: Greek banks tied to Greece etc. But the ties run across national boundaries.
The stupid nations are in the so called periphery of Europe the greedy banks are at the centre. Thus we have the very worst of all situations thanks to the unstinting genius of our bankers hand in glove with the eager connivance of our politicians - who were simply and principally trying to make sure that they would get a lucrative consulting or board member sinecure after they left politics.
This suicide pact suited the banks in two ways. Obviously they enjoyed being bailed out. But it also laundered their debt into nations so that the whole crisis could be re-branded in a much more bank friendly way. Away went the bank debts and in came sovereign debts. Same money, same debts, new packaging.
So let us be clear. The reason Ireland is a crisis, Greece was and will be once again and Portugal may soon become one, is because if they or their banks are allowed to declare bankrupcy, it wil bring down Germany's and France's banks. It is the debts of the banks in the central nations which are being bailed out whenever Ireland gets ECB money. The money goes from Ireland straight to Germany and France. With every bail out, the Irish people are being forced to pay the bad debts of German and French banks as well as their own.
Why not have Germany and France sort out their own banks? How much nicer to launder the debts and the blame through someone else.
No one is clean in this crisis. No nation, no people, no bank. But let us at least try to be clear and honest with ourselves even if such honesty is constitutionally impossible for our financial and political elites.
golemX1V
[url]
www.meattradenewsdaily.co.uk/news/211110/ireland____who_bankrupted_ireland_.aspx[/url][tag]insert-text-here[/tag]
I'm planning on faking a hiccup episode so I can get some sex from the wife.....<< Kitt Proimos get's the credit >>
cure hiccup
Not sure what happen on the deleted message, only the FX-ghost knows
Jim Rogers: 'More crises down the road'
Legendary investor warns U.S. and Europe are headed for years of decline
Ireland and Greece should have declared bankruptcy. Ben Bernanke is inept. College students should abandon their finance programs and study agriculture or mining.
Jim Rogers has never been a shrinking violet when it comes opinions about investing. And today was no exception. The legendary investor, who co-founded the Quantum Fund with George Soros in 1973, predicted further turmoil and volatility in the financial markets in the coming years -- thanks largely to irresponsible governments and money-printing central bankers.
“We're going to have more crises down the road,” Mr. Rogers said at a Reuters investment conference in New York City on Tuesday. “The politicians keep delaying the problems rather than dealing with them.”
Mr. Rogers is a fierce critic of the U.S. government's bailout of the banking sector and the European Union's recent attempts to stave off sovereign debt crises in Greece and Ireland. He contends that both the U.S. and Europe are headed for years of decline because of their loose monetary policies and rescue tactics.
Despite having positions in both U.S. dollars and the euro because “everyone is so pessimistic,“ he suggests the euro will not exist in fifteen years and that the U.S. may default on its debt in the next five years. He is currently short U.S. Treasuries.
“Things may look better for a while, but I'm very worried about the longer term,” he said.
Now based in Singapore, Mr. Rogers is more optimistic about Asia's economic outlook. He says China's high rates of savings and investment will fuel an extended period of growth for the country going forward. “People work hard there and they save their money. I buy renminbi whenever I can.”
A prominent commodity bull for the last decade, Mr. Rogers also continues to favor real assets over financial ones. Despite signs of economic weakness in the U.S. and Europe, he suggested that commodities in the energy, metals and agricultural sectors offer the best alternative to investors. His rationale? “There are shortages developing in the commodities sector and they'll only get worse. If the world economy improves it will help commodity prices. And if it doesn't, central bankers will print more money causing inflation,” he said.
And what would Mr. Rogers advise President Obama and Fed Chairman Ben Bernanke? “I would tell them to abolish the Federal Reserve Bank and resign their jobs.”
He was caught because of the leaks in his Wiki...
Two days before the 12/12/2012 Mayans prophecy....time to short mayan silver coins
Study Calls 73 the New 65
Nyhart, an actuarial and employee benefits consulting firm, this week released the findings of a six-month study that reviewed nearly 10,000 retirement accounts from employees at 110 public and private companies.
The research evaluated how contributions to their 401(k), the primary retirement tool for most of these employees, would affect the age at which they could retire.
It determined that 81% of employees 18 or older will not be able to afford to retire by the age of 65. The study blames it on "their failure to contribute enough of their income towards retirement."
The study also looked at the impact the economic recession of 2008-10 had on those 55 and older who expected to retire at age 65. That group, Nyhart says, will need to contribute more than 45% of pay through the remainder of their career to retire by age 65; ages 45 to 55 must contribute 19% to reach the same target.
The average participant, relying on their 401(k) as a primary retirement vehicle, will not be able to retire until the age of 73, the report says. Most employees age 60 to 64 will likely need to work until 75 to be able to afford to retire at their current levels of contribution to their 401(k).
"The decision of how much an employee contributes to their 401(k) far exceeds the importance of which investment funds they choose," Thomas Totten, senior actuary and lead researcher for the study, said in a statement. "By increasing your contribution by just 2-4% of total income, you can shave years off the age you retire."
Reference Link:
When your finished sweeping the floors then it may happen....you missed a spot so keep sweeping.
I have my new computer up and running....feels sweet to not be working from a net book. fat fingers and slow speed don't go together.
Both Jobs and unemployment numbers are up....you can only add so much frosting to this half baked cake before it falls over.
Are you getting a penny a post now, or 100 shares/post?