Deutsche Bank

All you need to read and more.

All you need to read.

• Beijing on edge amid coup rumours (FT) - as predicted two days ago, do not expect any official media update on this critical matter, until after the outcome, whatever it is
• Goldman scours emails for use of word "muppets" (Reuters)
• Germany to Balance Budget Early (WSJ)
• Osborne Gives and Takes From Rich in U.K. Budget Balancing Act (Bloomberg)
• Big Spending at Fannie, Freddie Should End, Watchdog Says (Bloomberg)
• Volcker Says U.S. Needs Reforms in Finance, Government (Bloomberg)
• Chinese Firms, Regulators in Talks on Yuan-Fund Program (FT)
• Ireland Said to Ready Bank-Debt Proposal for ECB Review (Bloomberg)

Why are we not surprised at the fact, as reported by the WSJ, that Deutsche Bank AG changed the legal structure of its huge U.S. subsidiary to shield it from new regulations that would have required the German bank to pump new capital into the U.S. arm. The bank on Feb. 1 reorganized its U.S. subsidiary, known as Taunus Corp., so that it is no longer classified as a 'bank-holding company' (BHC). The technical change has important consequences. Taunus—which at the end of last year had about $354 billion of assets and 8,652 employees, making it one of the largest U.S. banking companies—won't have to comply with a provision of the U.S. Dodd-Frank regulatory-overhaul law that essentially forces the local arms of non-U.S. banks to meet the same capital requirements that American banks fact. A provision of the Dodd-Frank Act was going to require Deutsche Bank to infuse Taunus, which for years operated with thin capital cushions, with what executives feared could be as much as $20 billion. Taunus is no longer a bank-holding company and won't have to comply with the tougher capital rules, even though Taunus still houses Deutsche Bank's U.S. investment bank, making it unclear what jurisdiction the Fed will have to intervene in the investment-banking arm if it has concerns about how the unit is being run or whether it has adequate capital buffers. So much for all that systemic risk control and lessons learned as hey-presto - everything is sidestepped as the farce continues.

• BHP Billiton sees China iron ore demand flattening (Reuters)
• Australia Passes 30% Tax on Iron-Ore, Coal Mining Profits (Bloomberg)
• State Capitalism in China Will Fade: Zhang (Bloomberg)
• Venizelos quits to start election campaign (FT)
• Fed’s Dudley Says U.S. Isn’t ‘Out of the Woods’ (Bloomberg)
• China Is Leading Foreign Investor in Germany (WSJ)
• Fed undecided on more easing: Dudley (Reuters)
• Martin Wolf: What is the real rate of interest telling us? (FT)

Deals from last week tell me that we are are again in a credit bubble.

The Fed is not a “dealer” giving “hits” of monetary morphine to an “addict”… the Fed has permitted cancerous beliefs to spread throughout the financial system. And the end result is going to be the same as that of a patient who ignores cancer and simply acts as though everything is fine. That patient is now past the point of no return. There can be no return to health. Instead the system will eventually collapse and then be replaced by a new one.

From Deutsche Bank: "We removed Apple from SOLAR following a ~50% gain since adding it to Solar on October 19th (adding ~$175Bln in market value). Over the same time period, the S&P is +15%."

"Rationalising away the imminent risk of inflation, the Fed leaves the door wide open for a QE3 announcement in April."

So Greece has been saved – is that right? Well according to ISDA (the International Swaps and Derivatives Association) a “Restructuring Credit Event has occurred with respect to the Hellenic Republic” which in the vernacular means the Greeks are bust; tell us something we don’t know! The importance of this statement is that credit default swaps (CDS) on Greek debt are now triggered and holders will have their losses made good. There were any number of scurrilous rumours that ISDA would not declare a credit event to preclude their illustrious members from paying out, but when the net downside of $3 billion needs to be shared out amongst the likes of Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley, UBS, BNP Paribas and Societe Generale, then a quick whip round in the bar after close of business and the jobs a good’un.

Going into the US open, markets are digesting the news that the Greek PSI deal has been completed, with the announcement being made at 0600GMT. The Greek Finance Ministry have announced that 85.8% of bondholders have agreed to the swap, and with CACs enforced, the participation rate can rise to 95.7%. However it should be noted that the Greek government have not enacted the CACs as yet. This has prompted a muted market reaction as participants await any further news from European officials. In the next few hours, the Eurogroup are holding a conference call concerning the recent activity in Greece, and the ISDA are also meeting to determine whether a Greek credit event has occurred. International market focus will now shift towards the key US Non-Farm Payrolls data, due at 1330GMT: US Change in Non-Farm Payrolls M/M (Feb) Exp. +210K (Prev. +243K, Dec +200K). Chinese demand for US Treasuries could slow for a second year as the country as well as others find themselves holding fewer USD to use on US debt. This could see yields moving higher in 2012, according to analysis by Bank of America.

All you need to read.

The biggest sovereign debt restructuring in history is now, well, history. The headlines are finally come in:

• GREECE ISSUES STATEMENT ON DEBT SWAP
• GREECE COMPLETES DEBT SWAP
• GREECE SAYS EU172 BLN OF BONDS TENDERED IN SWAP
• GREECE GETS TENDERS, CONSENTS FROM HOLDERS OF 85.8%
• GREECE SAYS 69% OF NON-GREEK LAW BONDHOLDERS PARTICIPATED

We learn that €152 of the €177 billion in Greek law bonds have tendered, which is 85.8%. This means that €25 billion in Greek law bonds have not - these are the hedge funds that could not be Steven Rattnered into participating, and will now sue Greece for par recoveries.This is also the number that ISDA will look at today to determine if, in conjunction with the CAC, means a credit event has occurred. And yes, the CACs are coming, as is the Credit Event finding:

• GREECE SAYS WILL AMEND TERMS OF GREEK LAW BONDS FOR ALL HOLDERS

All you need to read.