ESM Purchase Details Leaked

Tyler Durden's picture

Hitting the tape are leaked detailes obtained by Bloomberg detailing what the ESM will focus on as it is unleashed on the world. From Bloomberg: Europe’s permanent rescue fund will invest the core of its assets in AA or higher-rated debt issued by governments, central banks, euro-area agencies and international institutions, with the power to diversify into bank debt as it grows, its draft investment guidelines say, Bloomberg’s Brian Parkin, Rebecca Christie and James G. Neuger report. The ESM will keep at least 15% of its maximum lending volume, or EU75b out of an ultimate EU500b, in “assets of the highest creditworthiness” as per guidelines obtained by Bloomberg News. Does that mean all countries rated AA or below are ineligible? Because that pretty much invalidates Spain and Italy? Or is the draft going to be releaked with the AA revised to A, then to B then to CCC until finally the EURUSD sustains an upward move for at least 10 pips? But the funniest headline of all:


Lure is truly such a great word here. After all nobody will ever get their money back.

From BBG:

Europe’s permanent rescue fund will invest the core of its assets in AA or higher-rated debt issued by governments, central banks, euro-area agencies and international institutions, with the power to diversify into bank debt as it grows, its draft investment guidelines say.


The European Stability Mechanism, set to go into operation next month, will keep at least 15 percent of its maximum lending volume -- or 75 billion euros ($97 billion) out of an ultimate 500 billion euros -- in “assets of the highest creditworthiness,” according to the guidelines obtained by Bloomberg News.


* * *


Euro-area governments will start paying into the ESM next month, raising its capital to 80 billion euros by mid-2014. The first 75 billion euros of investments by the fully capitalized fund will be restricted to a “general eligible assets list,” with amounts beyond that available to purchase securities from an “enlarged” list that includes bank bonds.


In addition to the 80 billion-euro cash component, euro- zone governments have agreed to provide the ESM with 620 billion euros in “callable” capital. Ultimately, that would leave the ESM with 700 billion euros to draw on, a sum that includes a buffer that wouldn’t be lent out to distressed countries.


Investments will focus on securities issued in euros. Any foreign-currency exposure will be hedged. The fund will use derivatives “for risk-management purposes only,” the document said.


* * *


Investments will be divided into a short-term tranche geared to capital preservation over one year and a medium- to long-term tranche geared to capital preservation over three years. The longer-dated tranche could risk a maximum 2 percent loss over one year, the document said.


The fund will buy and sell securities “in a prudent manner” to maintain its creditworthiness and “limit any effects on market prices, even in situations of market stress.”


Other draft documents detail the ESM’s borrowing strategy and dividend policies.

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JPM Hater001's picture

They may not get their money back but it is an unbelievable opportunity to view a black hole up close.

GetZeeGold's picture



Take the ESM with you.......please!


trebuchet's picture

Someone soon is going to do the Math and realise that 

a. NO HOPE for Italian bailout

b. Maybe a hole in Spanish bailout

= No big bazooka.


Oh dear, whisper around the markets "dive, Dive, DIVE ....  !!!! 


Then the bond rating buy guidance  drops .....


Stackers's picture

Tyler, did you forget the EU is going to start self rating it's debt ? Everyone is AA or better. Problem solved

buzzsaw99's picture

calpers and fidelity will buy them

ArkansasAngie's picture

And if Calpers et al don't/can't buy them?

Why you will thru forved savings ... aka taxes

Only peons get to fail.

whirlybird rules's picture

there is a little apocalypse coming... you can smell it

JPM Hater001's picture

Damn I love the smell of apocalypse in the morning!

GetZeeGold's picture



Can an apocalypse ever be defined as little? Sorta negates the term don't you think?

whirlybird rules's picture

yes!  the market gasps and gaps down and then the ususal suspects come in, neutralize the momentum and lull us all into sleep.  But! I do believe there will be a day when we will top out on equities, bottom out on the dollar- you can fill in the rest...  and we will fall-break-fall-break and we will not see these levels again for a long time.

LongSoupLine's picture



Like my first car...just before it broke for good.

bigbwana's picture

Bloomberg is owned by the Illuminati, as is the MSM, and must never be taken seriously. The Illuminati are desperate because their evil backs are against the wall. All, and they know it, will pay for their heinous crimes against humanity. Promise the Galactic Federation (Google), who come in God's name, and cannot tell a lie. Dec21 is sround the corner. The Dark have been defeated! Spread the wondrous news. The Light. The Love.

Quinvarius's picture

Great!  Let me get my big shoes and rubber nose.  I think we can all fit in your car.  Lets do this.

sumo's picture

Comedians in cars getting collateral.

Cassandra Syndrome's picture

And the traitors in power in Ireland promised that the country would have access to the ESM if a Yes Vote was passed in the recent Fiscal Treaty Referendum. We are quite a few notches away from AA, but the realisation of all the sovereignty that has been sold out over this may require the services of another type of AA for the citizens in the future......

Catullus's picture

And if anyone downgrades the bonds we hold, we will shoot them.

ZeroAvatar's picture

All the baby Vampire Squids are busy attaching their blood-suckers to the host.


Thus, the sideways movement of the market since QEINFINI3 was announced.


Once the suckers are attached, the spice will begin to flow, again.



GetZeeGold's picture



the spice will begin to flow


Unless it's the Gulf of Mexico......that's no mans land there.


debtor of last resort's picture

"After all nobody will ever get their money back"

This is what i love most in ZH: Hitting Brussels stupid lying basterds right in the face, just like Farage does.

A Man without Qualities's picture

Ok, I give in.  I've got no fucking idea what they are trying to do...

Homo Erectus's picture

This document is about explaining where they would invest the ESM's paid-in capital. They are not talking about who they would lend to - which would include junk-debt issuers such as Greece and perhaps in the not too distant future Spain, Italy, etc. The ESM will have capital of Euro 80bln, and will issue debt to raise money that it will then lend to countries in difficulty. Whether this will work or not, we will see.

gojam's picture

Aren't they going to make all credit rating agencies illegal ?

The ECB will rate all European entities.

From this point on Germany, Finland, Austria, and Holland will be rated AAAAAAAAAAA

France, Belgium will be rated AAAAAAAA

Spain, Italy and Portugal will rate AAAA

And even Greece will be AA



mendigo's picture

ESM to be a bank with a ratings function.
Can't jeapardize the good work of the eurocrats who are too busy saving the works. The ratings agencies are a joke anyway and you are sure to get paid back in full with worthless fiat if you play nice and have the proper connections - gs are masters of slime but they may meet thier match against the bureaucrats they have arrogance and obtuseness and pretty red uniforms as thier main weapons.

GetZeeGold's picture



Love the smell of marxism in the morning.......smells like....YES WE CAN!!!


....but don't count on it.


orangegeek's picture

AA or higher-rated debt issued by governments.




AA according to whom?  The rating agencies are ordered what to report by their clients - their clients?  government.

mendigo's picture

They would be stunned to hear you say that.
Besides, you can't prove anything.
And they are forced to do it for our own good.
So ungrateful.

sodbuster's picture

AA or higher-rated debt issued by governments.

That means they will be buying the shit from the US!!?? The great global circle jerk!!! LOL

101 years and counting's picture

still can't wait to see germany have to add an extra 200B to the fund when italy, spain and greece cant come up with their share of 240B EUR.  thats right, the bailoutees are supposed to contribute 36% of the total for the fund.  details, details....



resurger's picture

Before we used to say the S&P must hold 1,400 now must reach 1,500!

Wake me up then

Quinvarius's picture

I watched a Chrisitine Legarde presentation on C-Span last night.  Cutting through the BS, it was all about the bankers getting their money back from their bad loans to governments and the rest of the planet has to become their slaves instead of defaulting.  She and the IMF have no answers.  The ECB has no answers.  The Fed has no answers.  They are all still in full on denial about what is happening, lying about it, or they are too stupid to understand it.  The are going to print like there is no tomorrow while sipping their own koolaid.  After they buy up everything real, and secure their claims on wealth, they will start buying up the garbage derivatives in the system and handing out absolutely free money to bankers.  That is where the real problem is. 

jay28elle's picture

all are lying and kicking the can down the road so the inevitable 'collapse' does not occur on their watch.

Quinvarius's picture

Here is the link to it:

She also likes to rhyme when she talks.  Which is totally weird.

sumo's picture

"The fund will use derivatives “for risk-management purposes only,” the document said."

Yes of course. It worked a treat for JPM's CIO casino, I mean, business unit. Strictly a hedge.

dvsteenk's picture

next short-squeeze push imminent i think - short-term of course