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Euro Plunges On Fears Of Senior Bondholder Impairments At WestLB

Tyler Durden's picture


Earlier today the Euro dropped to a three week low in the mid 1.34s, following a Reuters report that troubled German lender WestLB may have hit a snag in its restructuring plan. Per Reuters: "Aid for WestLB hangs in the balance, a source told Reuters
on Monday, as the bank struggles to come up with a rescue deal
as it enters the final stretch to present a restructuring plan
to the European Commission.
"The WestLB news doesn't provide a great deal of optimism to
the euro at the start of the week."
" Not at all, although the 100 pip move lower is par for the course for the one currency that has now absorbed all the vol of the Fed-manipulated and irrelevant stock market. The only question on most investors' minds is whether WestLB will follow Danish bank Amagerbanken A/S as the second one to follow with a senior bondholder restructuring per the new European guidelines. While Amagerbanken was small and isolated, it is time to see just how willing Europe truly is to put its insolvency where its mouth is.

EURUSD this morning:

More from Reuters:

Asian sovereign names were seen pushing the single European currency lower in early European trade, after demand from the region had boosted the euro earlier in the day.

Selling in the euro helped to boost the dollar broadly, pushing it up around 0.4 percent on the day against a currency basket to 78.765, its highest in three weeks.

It was flat versus the yen JPY= around 83.40 yen, recovering earlier losses suffered on earlier selling by Japanese exporters.

The euro's reaction to WestLB's latest woes underline the single currency's vulnerability to any signs of weakness in the euro zone banking sector as some countries struggle to deal with staggering debts.

 Debt issues will remain in focus as Spain and Italy hold debt auctions this week, while investors await details of a European debt rescue fund next month. "Concerns about a European debt rescue plan will remain in place until March, and that is definitely a risk for the euro, particularly when you consider the peak redemption for Portuguese and Spanish bond redemptions in Q1," said Sven Schubert, currency strategist at Credit Suisse in Zurich.

Benchmark government debt yields in Portugal PT10YT=TWEB have climbed around all-time highs above 7 percent, which market participants consider to be dangerously high in a country many believe may be forced to appeal for a bailout.

As the euro struggles, upbeat U.S. data has helped shore up the dollar in past weeks, and some analysts said more signs of an improving U.S. economy may boost the dollar even as the Federal Reserve is determined to keep rates chained near zero.

Well of course, in the great seesaw theater in which Europe and America take a leadership role for 2-3 months to keep everyone off edge, and confused, about just how bad everything is, the only thing the powers that be can do, is at least indicate relative outperformance, even as everyone careens off the cliff on an absolute basis. We give the "Great American Golden Age" meme another 3 months max before QE3  talk is fully employed by Jon Hilsenrath.


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Mon, 02/14/2011 - 08:42 | Link to Comment papaswamp
papaswamp's picture

ireland needs to go Icelandic and let the banks fail.

Mon, 02/14/2011 - 14:16 | Link to Comment Zero Govt
Zero Govt's picture

yes but not before the IMF and EU has pumped more money into the Irish Banks and the Irish people have removed the same from the ATM's leaving the IMF/EU holding empty shell banks and a mirror for the fools to look at themselves in... this is beyond funny ;)))

Mon, 02/14/2011 - 08:43 | Link to Comment Judge Judy Scheinlok
Judge Judy Scheinlok's picture

DX looks good but I will withhold judgement about EUR as it always disappoints.

Mon, 02/14/2011 - 08:53 | Link to Comment zhandax
zhandax's picture

Isn't WestLB a German version of an old line savings and loan?  Anyone care to bet that this is spun as a one-class banking issue? (everything else is us)

Mon, 02/14/2011 - 09:02 | Link to Comment Dismal Scientist
Dismal Scientist's picture

No its not. Its surprisingly large, covers investment banking through corporate lending ... and has got a balance sheet that is toxic. This is relevant for the rest of Germany and Europe.

Mon, 02/14/2011 - 10:01 | Link to Comment oogs66
oogs66's picture

This thing has been a pig for years.  Does this mean even Germany is finally done throwing good money after bad?

Mon, 02/14/2011 - 10:40 | Link to Comment Dismal Scientist
Dismal Scientist's picture

It will be bid for, or broken up, the underlying owners are the savings banks and am sure they'd rather get something for this turkey now than risk depositor money later. Only question is who is insane enough to step into the balance sheet blender...

Mon, 02/14/2011 - 09:08 | Link to Comment 99er
Mon, 02/14/2011 - 09:21 | Link to Comment misterc
misterc's picture

West LB is a bank owned by the state in some parts.

Lots of inept politicos and retired politicos on the board. The board seats are a politician's equal to the golden parachute for failed managers.

The bank was used to finance stupid adventures, job creation and so forth, where even the commercial banks always happy to take risks didn't wan't to finance.

They went from one scandal into the other throughout the 90s, long before the financial crisis of 2008.

Some liberals wanted to shut down all these state owned banks ("socialism!") in the past...

Mon, 02/14/2011 - 09:24 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

The opportunity cost for holding euros is dying  -  its still about dollars vs gold bitches.

Mon, 02/14/2011 - 09:28 | Link to Comment Orly
Orly's picture

I would advise caution trading the Euro today.  The EURJPY has not closed its gap down from the open of trading, so there is a very high probability that it will be closed by the end of trading today.

This would mean that RobotTrader (where is Wanger, anyway?) will probably appear later to rub his BTFD theory in our faces- say by two this afternoon.

If the gap is not closed, the pending downside move could be rather special.


Mon, 02/14/2011 - 09:28 | Link to Comment zhandax
zhandax's picture

In that case let's short some paper silver and get ready to buy some metal......

Mon, 02/14/2011 - 10:59 | Link to Comment RobotTrader
RobotTrader's picture

Europeans are becoming even more enamoured with U.S. equities....

New highs....

Mon, 02/14/2011 - 11:21 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture


Any tips for US centric steel companies - or are they all just global corporations with exposure everywhere ?

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