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European Corporate CDS Blowing Out Wider, Xover At 505, HiVol At 152 bps, Public Funding Crisis Becoming Private Again
The greatest fear of central banks, that the "isolated" sovereign contagion could spill right back into the private sector, is starting to be realized: now in Europe and soon in the US. Market News reports that high beta European CDS names and indices are all blowing out as fears of a funding/liquidity crisis are becoming prevalent. From MNI: "The CDS market has seen another session of
sharp widening in many sectors, taking its cue from falling Eurozone
peripheral government bond prices rather than stocks which are more
stable today. Greece and other widening government bond spreads continue
to drive sentiment, with the CDS market seeing underperformance in
places, with high beta cyclicals, TMT and basic materials dragging the
market wider." Corporate have so far been relatively spared from the deterioration in sovereign spreads, however if the risk perception in the public arena spills right back to the private sphere, then the entire private-to-public risk transfer episode will have been for nothing. And if corporate funding costs shoot higher, with no sovereigns to back them out (themselves in need of a bailout), well then our thesis that only Mars could possibly bail out the world's bankers will be all too real.
More from Market News:
Newsflow has been more mixed which has not helped sentiment. There are a raft of earnings out today, but quite a number have missed analysts targets.
One notable story overnight was Freddie Mac, which reported a net loss of $6.7 billion, adding that it will have to tap the government for another $10.6 billion, as the weak housing market continues to weigh on the company. The WSJ reports that the brunt of its losses resulted from accounting changes that took effect Jan. 1 and brought some $1.5 trillion in mortgage guarantees onto its balance sheet.
Despite recent positive signs on the macro data front, these types of structural losses still loom large over the economy and especially on the credit sector, according to one analysts. Xover today is 22bps wider at 505bps, HiVol 6bps wider at 152bps and Europe 5bps wider at 110bps.
BNP Paribas reported that Q1 net income increased by 47% to E2.28 billion versus E1.56 billion last year, beating analysts' estimates for a profit of E1.63 billion. The results were boosted by the purchase of Fortis' banking units in Belgium and Luxembourg and their ongoing integration into the group, plus a reduction in provisioning levels for bad debt. Overall provisioning levels were E1.34 billion, 27% less than the comparable period last year.
The bank said it has E5 billion of risk tied to Greek government debt and E3 billion of commercial loans with Greek companies. Shares in BNPP are currently up E1.18, trading at the E48.96 level, with CDS spreads 3 bps wider at the 128 bps level.
Commerzbank reported a Q1 net income of E708 million versus a loss of E864 million last year, beating analysts' estimates for a profit of E479 million. The profit was the bank's first in seven quarters, boosted by trading income of E850 million. A 24% reduction in provisioning levels to E644 million also helped earnings, with the bank saying its public finance unit held E3.1 billion in Greek sovereign debt.
The bank said that it may only post a profit for 2010 if the economy and financial markets remain supportive, reiterating that it hopes to post a full-year profit no later than 2011. Shares in Commerzbank are currently up E0.205, trading at the E5.914 level, with CDS spreads 7 bps wider at the 135 bps level.
Elsewhere in the financial sector, Swiss Re reported that its net profit rose 22%, to $158 million versus $130 million last year, beating analysts estimates for a profit of $139 million. The reinsurer said that big investment gains offset payouts for natural catastrophes and falling income from premiums.
Excess capital increased to $12 billion as the company looks to regain its double-A credit rating and repay the $3 billion invested in the reinsurer by Berkshire Hathaway. Impairments fell 84% to $90 million, with the company saying it had around $800 million in Greek sovereign debt. Shares in Swiss Re are currently up CHF2.44 trading at the CHF47.05 level, with CDS spreads 3 bps wider at the 128 bps level.
Lastly, AXA reported that Q1 total revenues were E27.9 billion versus E27.6 billion last year, in-line with analysts estimates for sales of around E28 billion. Life & Savings revenues were up 0.6% to E16.5 billion, with Property & Casualty revenues stable at E9.2 billion.
Asset Management revenues were up 10% to E809 million, mostly due to higher average assets under management. The company said it has E500 million of exposure to Greek sovereign debt. Shares in AXA are currently down E0.15, trading at the E13.32 level, with CDS spreads around 2 bps wider at the 111 bps level.
The TMT sector has seen some negative news flow this morning, making the sector one of the main underperformers in the CDS market. Alcatel-Lucent reported a Q1 net loss of E515 million versus a loss of E402 million last year. Analysts had predicted a loss of around E144 million. Shares in the firm have fallen very steeply (over 11%) on the much worse than expected data. The firm appears to be suffering from intense competition from non-European manufacturers, in a similar way to Nokia, which also reported disappointing earnings last month.
Alcatel-Lucent blamed problems with sourcing parts as one of the reasons for the lower profits, adding that demand was robust and generally speaking market conditions had improved significantly. The CEO added that Alcatel-Lucent will be able to satisfy the increased demand when component availability improves, reiterating its FY forecast and outlook. However, the credit market reacted more to the data than the outlook, widening by 18bps to 639bps.
Elsewhere in the sector, Portugal Telecom reported a Q1 net income of E100.3 mln versus E166.4 mln last year. The data was hit by higher spending in the groups television service, but overall sales rose a relatively healthy 11%. The reaction has been a little muted, but the CDS continues to be impacted by the dramatic widening of sovereign spreads, with PT today is 11bps wider at 226bps. In the wider sector, most higher grade single name benchmarks are 4-8bps wider so far on the session.
In the industrial sector there have been a couple of earnings announcements that have missed estimates today. Firstly, HeidelbergCement reported a Q1 net loss of E199 million versus a loss of E63 million last year. Analysts had estimated a loss of around E167 mln. The firm blamed the "coldest winter in years" for holding back construction projects, as has been seen with a number of core European industrials this earnings season. However in its outlook, the company said it had seen rising volumes since mid-March and a trend of better than expected dispatches. CDS is 12bps wider at 368bps, however this should be taken in context of generally weak price action in high beta single names.
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Foul ball hits spectator in the face. Shoulda built a bigger backstop.
CDS doesn't actually stand for Credit Default Swaps. It stands for Continent Destroying Synthetics. Blythe Masters and all of her cohorts should be imprisoned for life. All of the profits made through OTC swaps should be repatriated and given in large fiat wads to the workers of the world. The things are financial instruments of mass destruction: they are the work of Lucifer himself...played of course by Al Pacino.
I wish you didn't say only Mars can bail us out since Mars is the god of war
GALACTIC TARP:
http://williambanzai7.blogspot.com/2010/05/galactic-contagion.html
LOL!! One of your best ones yet. Keep them coming.
http://williambanzai7.blogspot.com/2010/05/galactic-contagion.html
Epic is Epic
...only Mars could possibly bail out the world's bankers...
can we securitise a planet?
How would you perfect the lien on an asset held by more than 7 billion people, who have fought with each other since the beginning of time?
We might create a synthetic securitization of Earth, though. Unless, Goldman beats us to the punch!
Their other, better option, is to tow us to the nearest black hole. Not just any old black hole either, this one has to be big enough to swallow all this debt.
Not sure the Martians wil be chumps enough to accept the bad credit of Earthlings.
This is important because bulltards and pump monkeys would have us believe that everything is great. In essence, the banks are lying about their condition, but Freddie and Fannie cannot lie. The banksters attempt, working in concert with a complicit FASB, to ring fence the MBS and CDO problems within Fannie and Freddie has worked until now. Fannie and Freddie are the housing market, so they cannot hide their troubles. Now, if Fannie and Freddie were also Primary Dealers, they could have used the FED to hide their problems. Once the FED fig leaf is stripped away, the banks will look like the rotting corpses they are.
Speaking of bulltards and pump monkeys, I wonder where my buddy Harry Wanger's gone? 1175/1168 rock-solid support for the S&P Harry? Where's the next rock-solid support?
Let me translate. The big boys are hungry and need to be fed so they run to the American peso drive it up get a swap from the Federal reserve and then later on we pay for it with our depreciated peso's which we have to sell as scrap metal so we can pay our under water mortgages so the boys can get fed again.
News Flash.....
Nationalize the banks. Bond holders and shareholders will lose 100%, but we can get to ground zero and start to run up debt again so that we can have this fun all over again.
Mark haines on CNBS getting edgy with a congresswoman over the Greek bailout. I can't wait to see the backpedaling/ fingerpointing when thid slide gets going in earnst.