How Canada Became Spain's Best Friend; Or Why The ECB Does Not Need To Haircut Toxic Spanish Bonds

Tyler Durden's picture

As reported over the weekend, the German press did some work and discovered that despite Spain being rated practically junk across the board, its bonds pledged as collateral with the ECB had virtually no haircuts, despite as we said back in April, them needing to be haircut by a solid 5% or more an amount which would force the Spanish banko-sovereign system to scramble to procure the critical €17 billion margin call. Well, moments ago the Bank of Spain (not the ECB) came out and said that the ECB had applied collateral rules correctly. However, by that they meant not that the ECB had demanded the needed 5% haircut due upon a downgrade into sub A-range, but that the rating agency which absolutely nobody has every heard of, Canadian DBRS, has a "rating that needs to be taken into account."

In other words, Spain's collateral call is now dependent not so much on Moody's downgrading the country to junk, which likely will happen soon if Rajoy does not demand the bailout which has been priced in for about 3 months now, but on what a tiny Canadian ratings firm, which has most certainly not gotten any quid pro quo from Europe to keep Spain at is A-low level (for long-term debt, not so much short-term) says is the Spanish rating quality.

Of course, should DBRS ever change its mind (wink wink), then the margin call will spring. As a reminder, Egan-Jones rates Spain CC...

And now go ahead and buy the EURUSD. However, before you do, here is what we warned yesterday:

So it would appear that if a hedge fund really wanted to see Draghi sweat and bring Europe's teetering-on-the-brink edifice to its knees, it merely needs to pick up the phone and request DBRS to create report on Spain's short-term financial health - since surely they like the other three raters will see the dismal and accelerating worse state of economic dysphoria and be unable to maintain an 'A' rating on this nation?

In the end of the day, it will simply be a case of overbidding: can a consortium of hedge funds, currently packing a massive SPGB cash short, present an offer to DBRS that not even the Ontario-based rater can refuse (Mario Draghi right of first refusal notwithstanding).

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Frastric's picture

Giving the rate at which Draghi's nose is expanding, he could touch his dick with it...

Stackers's picture

Bell curve rating system ? Wish they did that with my credit score.

Stock Tips Investment's picture

This already looks like a joke. The situation in Europe is so critical, that resort to any trick, in order to not more complicated. Obviously, the ECB does not want, for any reason, Spain's debt is downgraded. Then, cover one eye, put cotton in the ears and get to see the sea. Only then, do spend evitarn Spanish debt falling as a bird without wings.

lineskis's picture

Where is the Deer in headlights?!?

Eireann go Brach's picture

I can't wait to have Michelle Obama spend my tax dollars on her mindless vacations around the world again!

juangrande's picture

This is the biggest problem you have with the Gov.?

williambanzai7's picture

The theater of the absurd.

Be prepared for plenty more before it all crumbles.

JPM Hater001's picture

You kidding!  We just finished

cash for the noggins and the piggins and the frikins


JPM Hater001's picture

It's a musical about a scam and the buyin is just beginning.

Wait till the singing starts

holdbuysell's picture

Ratings agencies are the next subprime...anyone with a pulse... /sarc

BandGap's picture

I'm starting my own ratings agency today.

Work from home, internet style making $80 an hour.....

machineh's picture

My mom makes $82 an hour rating sovereign bonds on her home computer.

And so can you! Dial 1-800-AAA-FOR-U ...

Doubleguns's picture

DBRS stands for what?! Bet it starts with Draghi, Benny, Rajoy, Stealing.

TheObsoleteMan's picture

I just started my ratings firm this morning, open and ready for business. We specialize in Sovereign debt, and for a "special consideration" we will rate your bonds at whatever grade you tell us you would like. After all, it's not about investors or creditors, we realize it is all about perpetuating the ponzi. Yes, we here at Judas Co. are here to serve the needs of dictators, technocrats and wayward politicians who just can't say yes to budget cuts and austerity. Roll that debt at sub 5%, we here at Judas Co. can help!

Mark Carney's picture

LOL I remember when I went for an intereview at Canadian Western Bank awhile back and so I checked out their fiscal and quarterlys to see how they shaped up...thats where I found that their debt was rated by DBRS...I was like, WHO DA FCUK is that???



philosophers bone's picture

DBRS is the rating agency that continued to give (AAA) ratings to Asset Back Commercial Paper (ABCP) a few years back after Moody's and S&P stopped rating ABCP altogether.  It was one of the causes of the ABCP crisis / scandal in Canada.  I believed it dropped the rating on ABCP from AAA to junk overnight.  Nice "due diligence".  But if investors still rely on them, who is really to blame.  Fool me twice....


falak pema's picture

you should read "Absolute Friends " by John Le Carré.

It bridges the gap between cold war idealism type spooky games and blatant "no holds barred" type, played in hubristic autocelebration of GWB's Iraq invasion age, and Abou Ghraib chimes. Two worlds of western spooks who work for two sets of values.

Well, to push the analogy to its conclusion; is this Canadian company an "absolute friend" of the Old club of S&P, Fitch and Moody's or is its "twist " dirtier in kind that what the old club did (or did not do) in those pre halcyon 2008 years...?

Now that is a question that only a true spook can spout about by showing the world his daily logs of spooky time chimes! 

Transparency is the yardstick that a rating company, like a spook, nevers abides to...Inhouse expertise, aka obscurantist dogma of market chamanist, is part of their DNA. You'll never know the Coca Cola formula !

Nor why Spain gets clobbered but not California. So why not aid Draghi and Spain if its worth the pain and shame!

After all the market is about making money and all is fair in market, love n war! 

Matt's picture

Maybe soveriegn nations should become modern and hip, and use a Peer-to-Peer ratings system?

Anasteus's picture

Or a Crony-to-Crony rating system.

falak pema's picture

Oligarchy sleight of hand and proxy shenanigans in all their glory; what a lovely capital market; something Adam Smith would have been proud of.

As for Ayn Rand, she would be singing that Draghi is John Galt,  doing God's work all on his own to save the ship of Entrepreneurial Capitalism.

I suspect Ayn Rand would have been an Abby Joseph Cohen  if she had lived in this day and age! Abby started at the Fed...

Working for the best of WS world, aka Goldman, the Squid, Sachs, the Knghts Templar of Capitalist Jerusalem. 

Two peas from the same pod; Ayn and Abby. 

Henry Hub's picture

Ayn Rand became well versed about Social Security and Medicare as well, in her own way, in that she collected both in her old age. The irony is overwhelming.

Nothing To See Here's picture

If the few people who understand that the system is broken and who dare speak against it would all decide to starve to death as a show of principle against the means of survival allowed by the State, guess who the winner would be.

Henry Hub's picture

I would have thought a lot more of her, and taken her a lot more seriously if she had staved to death. Or perhaps having her die from some curable disease while refusing Medicare. That's the kind of roll models Randians need.

plaspotje's picture

come on europe  ,,, stand up for your self  and peg that euro to the dollar  1 to 1  and  start trading with the middle east  1 billion people and with all of asia  an other 3 billion people and stop taking orders from  goldman sucks   aka usa and  it will create lots and lots of jobs and  that will lower your debt ,,  how simple  is it not !!!!

import that cheap oil from iran again  it will do wonders    you f---ing  bumb european dumb leaders

falak pema's picture

unfortunately this generation of Euro leaders are totally PAX americana shills. It will take pain before the euro train leaves that Nato type shell station.

juangrande's picture

Arbitrary lines drawn on a globe mean as much to these people as political party lines! They laugh at our absurdity...

Auburn's picture

Looks like rating dude is based in the NY, Broadway office.  Dear Fergus - you belong on Broadway .... in a comedy.

DBRS Contacts Fergus J. McCormick
Head of Sovereign Ratings – Financial Institutions, Sovereign Group +1 212 806 3211
Rainman's picture

Meanwhile, Europe's biggest bank, HSBC , gets popped by the US for laundering Mexican drug profits

Anasteus's picture

Ah, that's why we need a solidly looking European rating agency here. Sadly, the first attemp to establish one failed months ago. Perhaps we could reiterate the efforts once again. If so, then following the similar methodology S&P, Moody's, etc. used for evaluation of the junk mortgage packages five years ago, Greece could easily gain ABB and Spain AAB.

Arkadaba's picture

Heck I'm Canadian and I've never heard of DBRS

plaspotje's picture

that is because it does not exist  , its an other fake company from mr goldman sucks and the obummer dude , and give it 48 hours and it of the radar

ItsDanger's picture

I worked with them on deals in the mid-90s.  Reputable firm.  But who knows what they're like these days with all the side deals that go on now.

Au's picture

You misheard. Canada rated Spain "eh?" Not A. It's the accent.

Jreb's picture

Thought they said "Raid Spain eh?"

You can't trust Canadians...

First Spain - then the world....

Au's picture

Canada's DBRS, the "Eh Team" of rating agencies.

oddjob's picture

DBRS is a joke. Nothing more than a group of skillless white collar welfare recipients gathering each day for a solitaire fest.

Metalredneck's picture

Not every computer in finance is used for midget tranny porn.