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The Two Charts That Keep Draghi Up At Night
While many would argue that youth unemployment (the real scariest chart here), in fact we suspect it is the following two charts that are really keeping Mario Draghi up at night. The lip service paid by the French and the Germans to growth strategies and youth unemployment pale in relation to the desperation of the European collateralizer-of-last-resort to de-fragment his transmission channels and unleash his own QE to the starving banking systems of Spain and Italy.
As BNP notes, recent data on Italian and Spanish banks’ bad and non-performing loans (NPLs) have reignited the debate on the health of the banking sector in the eurozone’s peripheral economies and its implications for the bloc’s credit supply and, ultimately, economic growth. But what is worse is that interest rates on new loans for a company in Italy or Spain are almost double those in Germany and France.
It is against this backdrop that Draghi expressed plans to revive the ABS market - but implementation will prove significantly more challenging than market hopers believe (as is clear in credit markets) and direct purchases will probably face vetoes by a number of influential members of the board.
To add further salt to these fresh wounds, the FT reports that Spanish banks will need to set aside more than EUR10 billion more reserves to cover the rolling over of EUR 200 billion of 'extend-and-pretend' loans.
According to recent data, Spanish banks rolled over more than €200bn of loans before they expired – often because corporate borrowers would be unable to repay their debt on time and in full. The €10bn estimate is the first official assessment of the likely impact of the central bank’s new approach towards these refinanced loans.
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The Bank of Spain believes that the risks emanating from this practice, known as “extend and pretend”, have not been fully covered and is pressing all banks to reclassify their refinanced loans according to tighter standards by the end of September. The new regime will make it harder for banks to treat refinanced loans as if they were performing normally, in turn forcing lenders to take additional provisions.
“Our banks will need more provisions,”
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The new round of provisions is expected to make a significant dent in profits at a time when Spanish bank earnings are already under severe pressure in their home market.
Via BNP,
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The deterioration of credit quality and the resulting problems for the banking sector are not news in Spain. The implications for bank balance sheets of the plummeting construction sector were the main trigger of the country’s fiscal crisis. Conversely, in Italy, the sounder state of the banking system allowed it to better withstand the initial shock of the financial crisis. However, a double whammy of indirect crisis effects is now hitting banks in both countries. The rise in government bond yields and the downgrades of sovereign debt ratings have pushed up the cost of funding, while the contraction in GDP has led to a worsening of loan quality.
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Interest rates on new loans for a company in Italy or Spain are almost double those in Germany and France. With bank lending accounting for around 80% of the financing of the corporate sector in both Italy and Spain (the percentages are even higher for small companies, which find it harder to tap into alternative sources of financing, such as the capital markets), this is damaging firms’ competitive position and proving a significant obstacle to growth.
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It is against this backdrop that we must view the ECB’s plans to revive the ABS market, as hinted at by central bank chief Mario Draghi at the last ECB press conference. Implementing the plan, we believe, may prove challenging.
Direct purchases would leave the ECB’s balance sheet vulnerable to credit risk and probably face vetoes by a number of influential members of the board. Other alternatives, like the direct involvement of the EIB, are more likely, but not free of problems, as higher levels of non-performing loans ultimately mean more risk.
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WHO YOU KIDDIN' - NOTHING KEEPS THAT SLIMY BLOWFISH SPORTIN' PRESCRIPTION COKE BOTTLE LENSE WEARIN' "ANTHONY WEINER" - UP AT NIGHT.
HE JUST SLEEPS THROUGH IT ALL - CHARTS BE DAMNED!
<- Medici
<- Rothschild
This is under the presupposition that Draghi:
A. Has a soul
B. Gives a flying fuck about reality
The only thing that will keep Draghi up is the threat of being exposed as a charlatan who is destroying the ECB, only because he'll lose the harem of multicultural ladies of ill repute on his floating island of a yacht.
Let's be honest... NOTHING keeps Draghi [or any of these fools] up all night...
They indeed can be cheerful with OPM (Other People's Money)
Draghi and co. all know the euro-zone might blow up and explode, but they plan to play the game out for as long as possible
Right now, the game is to postpone till after German elections in September ... and the secret question is how to hold everything together till then ... currency swap lines from Ben Bernanke are a big help
After September, they will get radical and try to 'fix' the EU and go toward the EU-German Union of Europe ... but even they themselves don't give very high odds for it
Jim O'Neill retiring from Goldman Sachs (can be taken as proxy for his Goldman pal Mario Draghi) thought the FisKal German Union, that will be attempted after the German election, might be put together and stick, but he did not give it very high odds ... he did not give a figure but he sounded like it was 55 /45 in favour of a U S of Europe, but almost half a chance the Euro-Zone would explode
My thought is the euro-zone will explode and break up, and they cannot stop it, but they will try ... the street revolutions of southern Europeans will be unstoppable in the end
Hitler lost...but you could argue since all that was available to Germany at that time was a military plan...and execution...that in that sense "he won."
Except for their mistresses and hookers.
one look at that pompous little twat tells you all you need to know
So what? There simply is no plan B, and never has been. All we need to know has already been said. By him: http://www.zerohedge.com/news/2013-04-04/mario-draghi-responds-zero-hedg...
Plan A = 'Print MOAR' [& try to skim enough vig in the process to buy yourself a Greek Island, fully equipped]
Plan B = 'Divide by Zero' [& go down to the icy deep blue with the rest of the 'steerage class']
Drughi never has trouble sleeping.
im willing the bet the only thing keeping draghi up at night (since he is a banker and has no conscience) is a booty call from bernanke or another line of blow.
Mish had this on his blog too. Quite a telling reminder of the damage already done. Understand the negative sentiment here...as with re-marrying your ex again "hope is the enemy" and certainly not an investment strategy. We'll see how things pan out here...I do agree financially speaking I see nothing but total wreckage save for the USA and The City which appear to be...simply blissfully dancing about the room as if nothing ever happened in the first place (2008) let alone "is going on currently."
SuperDraghiMario couldn't care less whether interest rates for companies in Italy or Spain are almost double of the ones in F or D: there are simply no companies asking for credit! And even that, no problem! The italian Letta gevernment is talking, talking and filibustering as they are and were and always will be used to. So, again move on. Nothing new under the sun, highways full of trafic, restaurants need reservations, everything is doing well. Remember, Draghi and Bernanke are walking together in synchronicity.....forever.
What seems obvious as the outlier to me is that french rates should not be following germany's drop. I know this is a flash of the obvious to this site. Wait until french rates start decoupling from germany's. Moar pain, moar QE!
Start a new career in debt collection services...
The second chart shows how things used to be before everyone joined the Euro. This chart is reflecting a healthy market that is assessing risk on an individual basis, as opposed to lumping everyone together in (the illusion of) one single currency. Loans to PIIGS businesses, most definitely SHOULD be more expensive than loans to German businesses - global recession or not.
http://nipponmarketblog.wordpress.com/
Oh, there's thrashing under the calm dark waves, and casting blame, there is indeed.
Hung midsea
Like a boat mid-air
The liners boiled their pastures:
The liners of flesh,
The Arctic steamers
Brains the size of a teacup
Mouths the size of a door
The sleek wolves
Mowers and reapers of sea kine.
THE GIANT TADPOLES
(Meat their algae)
Lept
Like sheep or children.
Shot from the sea's bore.
Turned and twisted
(Goya!!)
Flung blood and sperm.
Incense.
Gnashed at their tails and brothers
Cursed Christ of mammals,
Snapped at the sun,
Ran for the Sea's floor.
Goya! Goya!
Oh Lawrence
No angels dance those bridges.
OH GUN! OH BOW!
There are no churches in the waves,
No holiness,
No passages or crossings
From the beasts' wet shore. ~ Michael McClure
But, yet again, I am chastised for playing, and judged by those not woken to the layers.
The base of my spine is pinched to tingle, So silent I fall once more.