Archive - Oct 16, 2012 - Story

Remember when we said the Citi numbers were a miserable joke? Apparently at least two people (not Jim Cramer who absolutely loved Citi's "hairless" result) were aware of this:

• CITIGROUP NAMES MICHAEL CORBAT AS CEO VIKRAM PANDIT STEPS DOWN
• CITIGROUP PRESIDENT-COO JOHN P. HAVENS ALSO RESIGNS
• CITIGROUP NAMES MICHAEL CORBAT AS CEO VIKRAM PANDIT STEPS DOWN
• CITIGROUP BOARD UNANIMOUSLY ELECTED CORBAT TO CEO
• CITIGROUP SAYS HAVENS HAD BEEN PLANNING TO RETIRE AT YEAR END

And so the rat procession out of the titanic begins.

Curious why the EURUSD has taken off like a stung dog again? The same reason as always: posturing out of Germany that contrary to previous Reuters misreports, it actually is happy with Spain doing a mini-bailout. To wit:

• GERMANY OPEN TO PRECAUTIONARY CREDIT FOR SPAIN, LAWMAKERS SAY

And now the ball is back in Rajoy's court, as Spain will have no choice but to implement this mini-bailout, which is not the full ESM rescue package, but will allow the ECB to buy piecemeal Spanish debt (as opposed to merely dangling the threat it will do so). The bad news is that like QEternity, the open-endedness of the ECB threat to monetize Spanish debt is far more powerful than the actual process. Furthermore, the entire Spanish bailout, not just the partial one, has already been long priced in in its bonds. In other words, this is nothing but posturing, but one meant to push Spain ever closer to requesting not only a small bailout request (one which would not allow the ESM to monetize Spanish debt in the primary market, but will allow ECB to buy Spanish bonds in the secondary market), but a full blown one. Finally, never forget that to Germany this is all a process geared for one simple thing: keeping Europe's biggest and most relatively undercapitalized bank - Deutsche Bank - afloat. If this means rescuing it via the guise of Spain, so be it.

Goldman is back. After the market beating hedge fund, which unlike its peers needs no DVA/CVA or loan loss releases to pad its numbers, was forced to exist in the scandalous shadow of its larger peers (coughjamiedimoncough), the tentacled one is back to making waves on its own, following a Q3 EPS beat of $2.85 on expectations of a $2.28 print, and revenues of $8.35 billion on expectations of $7.18 billion. The reason for the beat? A surge in Investing and Lending (aka Prop trading) revenues, which is the biggest quarterly variable, and which soared to $1.8 billion in Q3 from a paltry $203 million in Q2, and from a major loss of $2.5 billion in Q3 of 2011. All other business segments were in line, with IB down modestly from Q2, Client Flow in FICC in line sequentially, Client Flow in equities rising modestly due to a jump in Equities Client Execution, and a sequential drop in Investment Management. And that's it: no balance sheet or accounting gimmicks, which one has to at least give GS credit for. The bottom line for GS employees as a result of its hedge fund once again performing as expected? With compensation margin fixed firmly at 44% of net revenues, this means employee comp provisioning soared to $3.675 billion, far above the $2.9 billion in Q2 and $1.6 billion in Q3 2011. It also meant that the average comp for the firm's 32,600 in total staff at period end (up from 32,300 in Q2 and 32,400 in Q1) is now an average $404,172, the most since Q2 2011. It just may be a great bonus year for Goldman after all.

• Hillary Clinton Accepts Blame for Benghazi (WSJ)
• In Reversal, Cash Leaks Out of China (WSJ)
• Spain Considers EU Credit Line (WSJ)
• China criticizes new EU sanctions on Iran, calls for talks (Reuters)
• Portugal sees third year of recession in 2013 budget (Reuters)
• Greek PM says confident Athens will secure aid tranche (Reuters)
• Fears over US mortgages dominance (FT)
• Fed officials offer divergent views on inflation risks (Reuters)
• China Credit Card Romney Assails Gives Way to Japan (Bloomberg)
• Fed's Williams: Fed Actions Will Improve Growth (WSJ)
• Rothschild Quits Bumi to Fight Bakries’ $1.2 Billion Offer (Bloomberg)

If yesterday it was Greece that the market was once again inexplicably enthused about, today it is Spain's turn, which is once again in the open-ended action crosshairs, following an unsourced (are there any other kind these days?) report by the FT, saying the country with the 25% unemployment is prepared for an imminent bailout request (contrary to a previous report by Reuters saying the ETA on this is November). That these are simply more bureaucratic tests to gauge the market's response is by now known to all - the truth is nobody knows what happens even if Spain finally requests a (long overdue and priced in) rescue. Because even with bond yields briefly sliding, they will only ramp right back up, even as the Spanish economic deterioration continues. But that bridge will be crossed only when Rajoy is prepared to hand in his resignation together with a signed MOU to a Troika boarding commission. In other news, Spain sold €3.4 billion in 1 year Bills at a yield of 2.823% compared to 2.835% last, and €1.46 billion in 18 month Bills at a yield of 3.022% versus 3.072% last. Since both of these are within the LTRO's maturity (whose 1 year anniversary, and potential partial repayments, is coming fast in January) the bond was a token exercise in optics. Elsewhere, German ZEW Economic Sentiment rose more than expected from -18.2 to -11.5 on expectations of a -14.9 print, despite the ZEW's Dick summarizing the current Eurozone situation simply as "bad", and adding that "downward risks are more pronounced than upward." Confirming his fears was a government official sited by Bild who said that 2013 growth has been reduced from 1.6% to 1.0%. In all this newsflow, the EURUSD has quietly managed to do its usual early am levitation, and was at overnight highs of 1.3015 at last check.

Just when the channel-stuffed world was hoping for some good news, European car registrations pop up to smack the dream back to reality. A 10.8% YoY decline, the biggest drop in two years, makes it 11 months-in-a-row of dropping YoY comps. Before the crisis began, car registrations had risen on average 1.7% YoY each month; in the 4.5 years since they have dropped on average 4.7% YoY each month. The Eurozone year-to-date is -10.5% with Cyprus (-19.4%), Greece (-42.5%), Italy (-20.5%), Portugal (-39.7%), and Spain -11.0%. However, Spain's very recent past has been extreme to say the least with a 36.8% YoY drop from last September. Interestingly, Land Rovers are up 42.3% YTD while Alfa Romeos are down 31.6% YTD (and Mercedes and BMW down around 1% YTD). But apart from that, Europe is doing great - just look at earnings expectations for Q4.