Stress Test

Just out from Bloomberg:

• Deutsche Bank preparing a capital increase, aims to raise EU8 billion through new shares by end of June, Handelsblatt says, citing unidentified people in the finance industry.
• Deutsche Bank likely to get new single investor
• Deutsche Bank new investor may hold 5%-8% of shares
• Deutsche Bank declined to comment: Handelsblatt

And the punchline: Bank’s new shares may be sold with 25%-30% discount. In other words, it is liquidity scramble time, and the bank is willing to give anyone with deep enough pockets a 30% discount to market price just to get some additional short-term funding.

Silvio Berlusconi - ironically nicknamed "The Teflon Don" - has been found to have done business with the Sicilian Mafia for nearly two decades, according to Italy's Supreme Court of Cassation in Rome. Having attacked the "biased judges" who called his actions "a continuous crime," Berlusconi wriggled out from under this result since the link to the Cosa Nostra was, as The Independent reports, via his conduit and former senator Marcello Dell’Utri who was sentenced to 7 years for mafia association. While this confirms as fact yet another conspiracy theory, the bigger story was the confirmation of a broad-based bloodless coup to ouster the Italian Prime Minister at the peak of the credit crisis. "At one point that fall, a few European officials approached us with a scheme to try to force Italian Prime Minister Silvio Berlusconi out of power," Tim Geithner writes in his new book, and after telling the President about "this surprising invitation," they decided not to get involved (publicly): "We can't have his blood on our hands."

"They know nothing..." - grab your popcorn and settle in for the clash of the titans as the Cramer-Geithner lovefest explodes on to your screen... the question is will we see:

Cramer 2008 "if Geithner is installed as the next Treasury Secretary then we are done, kaput, finished... we are completely and royally hosed as a nation" or

Cramer 2012 "Geithner is one of the greatest Treasury Secretaries ever."

By "Turbo Tim" Geithner...

Bailing out banks is not hard when a nation has a sovereign currency and the banks’ debts are denominated in that currency.

Never in a million years did we think we’d ever use an article by Andrew Ross Sorkin as the basis of a blog post, but here we are. While probably entirely unintentional, his article serves to further solidify as accurate the prevailing notion across America that former head of the New York Federal Reserve and Obama’s first Treasury Secretary, Timothy Geithner, is nothing more than an addled, crony, bureaucratic banker cabin boy. Simply put, "Geithner is so bad, he actually makes Larry Summers look good."

While it will come as a surprise to exactly nobody, certainly nobody who understand that the US financial system is no better financial shape than just before the Lehman crash as nothing has been fixed and everything that is broken has been merely swept under the rug (for details see Paul Singer's explanation posted last night) of epic-er leverage, the news that when (not if) the US economy succumbs to a severe economic downturn Fannie and Freddie would require another taxpayer funded bailout, one of $190 billion or even more than the first $187.5 billion-funded nationalization of the GSEs, can only bring a smile to one's face.

Earlier today the EBA published its common methodology and scenario for the 2014 EUwide bank stress test. The adverse scenario covers the period 2014 to 2016 and at least on the surface is generally tougher than the adverse scenarios in previous similar exercises, resulting in a severe negative deviation of EU GDP growth of 7% from its baseline level by 2016. So far so good. But where the whole thing disintegrates into yet another sham spectacle confirming just how insolvent European banking truly is, is one simple observation: not even under the adverse scenario does the ECB contemplate the possibility of deflation!

Bonds, Gold, and JPY are bid this morning as US equity futures are fading fast. The Dow and S&P futures are now back below pre-AAPL/FB levels and Nasdaq futures falling fast. Gold is back above $1300 (up over $30 from yesterday's pre-Putin lows). Treasuries, led by the long-end, are rallying as safe-haven bids appear across the whole complex. 30Y yields are down to 3.53 - the lowest since July. JPY is bid once again as USDJPY tests back to the crucial 102 level.

• Putin Doesn't Rule Out Sending Troops (WSJ)
• Japan Cuts Economic View on Tax Rise (WSJ)
• No "harsh weather" in Chipotle restaurants where comp store sales rose 13.4% (PR)
• No sanctions for you: EU sanctions push on Russia falters amid big business lobbying (FT)
• Consumer Spending on Health Care Jumps as Obamacare Takes Hold (BBG)
• China Seen Cracking on Property Controls (BBG)
• Google, IBM results raise questions about other tech-sector companies (Reuters)
• California city evacuation lifted after military ordnance found (Reuters)
• For Obama, Standoff With Moscow Jumbles Plans at Home and Abroad (WSJ)

Most Buy Side managers have no idea about the disparate business models of the four largest US banks by assets. 

Presented with little comment aside to ask, WTF?

So, they might be on the opposite side of the Atlantic Ocean, but the Europeans and the Americans have one thing very much in common.

• US, Russia talks fail to end Ukraine deadlock (AP)
• Russian forces 'gradually withdrawing' from Ukraine border (AFP)
• Turkish PM Erdogan tells enemies they will pay price after poll (Reuters)
• And Goldman arrives: Credit markets open to Argentina for first time in years (Reuters)
• Regulators Twice Failed to Open GM Probes (WSJ)
• Bad loan writedowns soar at China banks (FT)
• Investors Breathe Life Into European Banks' Bad Loans (WSJ)
• Euro zone inflation drops to lowest since 2009 (Reuters)
• Yellowstone National Park rattled by largest earthquake in 34 years (Reuters)