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JPM Tries To Explain Why The Bailout Train In Spain Will Lead To Much More Pain

Tyler Durden's picture





 

Reports citing European sources state that Eurozone finance ministry officials, followed by finance ministers themselves, will hold conference calls on Saturday. A formal request for Spanish EFSF/ESM/IMF support, solely for the purposes of bank recapitalization, could be announced after these calls, and appears to be the motivation for them. As JPMorgan notes, while the timing of such a request would come as something of a surprise, the substance does not.

JPMorgan goes on to note that:

Yesterday, Spanish PM Rajoy said that the authorities were awaiting reports from independent audits of the banks before assessing the overall recapitalization need, and then deciding how to proceed. One obvious possibility is that the region will agree to a Spanish request in principle, leaving the exact amount to be specified at a later date. To provide some guide posts, our banking analysts have suggested recapitalization needs may ultimately run to €150bn if Irish experience is a template for the losses that may ultimately accrue on the mortgage book. However, reports suggest that the IMF's assessment of recap needs is much lower at near €40bn.

 

Given that there have been no reports of Germany dropping its resistance to the EFSF/ESM investing directly in the banks, it appears very likely that support will be channelled through the sovereign. The conditionality alongside that support looks set to be relatively light – focused on the banks themselves, rather than requiring more monitoring of broader aspects of policy. But given that the Rajoy administration has already internalised objectives of fiscal consolidation and structural reform - and is seeking to bring its deficit to GDP ratio down by nearly 6 percentage points over two years - this sort of package should not come as a surprise.

 

A key question is whether this request for external support will serve to improve conditions in the Spanish bond market and raise Spain's chances of avoiding a broader support package. Our best guess is that it will not.

 

The request for support has at least three negative consequences:

  1. It implies some degree of subordination of other holders of Spanish sovereign debt.
  2. It provides a clear demonstration of the limits of the ability of the sovereign to raise funds on its behalf.
  3. And it crystallizes banking losses accruing to the State which it had hoped to avoid.

We suggest that a banking support package would be likely to turn out to be a stepping stone to a broader package of support for Spain, with that likely to be in place by the end of August. That remains our central view.

 


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Fri, 06/08/2012 - 12:47 | Link to Comment Calidreaming
Calidreaming's picture

And the Market is green because..... ?

 

Fri, 06/08/2012 - 12:48 | Link to Comment Ahmeexnal
Ahmeexnal's picture

Spanish bondholder haircut coming.

Fri, 06/08/2012 - 12:52 | Link to Comment Sandmann
Sandmann's picture

No they will simply do a swap Spanish Olives for Greek

Fri, 06/08/2012 - 13:26 | Link to Comment mayhem_korner
mayhem_korner's picture

 

 

I hear Bwanee Fwank will swap just about anything - including olives - for greek...

Fri, 06/08/2012 - 13:30 | Link to Comment derek_vineyard
derek_vineyard's picture

and the spx never entered correction territory........what gives?

Fri, 06/08/2012 - 13:36 | Link to Comment AldousHuxley
AldousHuxley's picture

da Zoos....which now excludes American Jews

 

Israeli Govt: Don't Marry American Jews

http://www.youtube.com/watch?v=4P7XTbm9ED0

 

True colors are shown...by Israli Ministry of Immimgrant Absorption

Fri, 06/08/2012 - 12:54 | Link to Comment Manthong
Manthong's picture

I recently heard something to the effect that  “credit is the art of getting paid”.

It seems though that in today’s market, credit is the art of making people think that you are getting paid.

Fri, 06/08/2012 - 12:58 | Link to Comment Ahmeexnal
Fri, 06/08/2012 - 13:45 | Link to Comment NotApplicable
NotApplicable's picture

Wow, how did they ever last this long?

Fri, 06/08/2012 - 14:10 | Link to Comment jcpicks
jcpicks's picture

Bring back RoboCop

Fri, 06/08/2012 - 13:20 | Link to Comment Wizard of Finance
Wizard of Finance's picture

that's called Banking. 

taking money from depositors and lie them about your ability to repay all of them immediately. 

Fri, 06/08/2012 - 14:27 | Link to Comment WillyGroper
WillyGroper's picture

Whilst you are actually getting laid without being kissed.

Fri, 06/08/2012 - 13:34 | Link to Comment AlaricBalth
AlaricBalth's picture

JPMorgan's direct exposure to Spain as of the latest 10-Q, as measured under JPM's internal risk management approach is $5.6 billion net in non-sovereign lending. However, they have $42.72 billion in notional CDS protection sold and purchased in Spain, 98% of which is offset, leaving an approximate CDS exposure of another $1.00 billion. This leaves JPM's total Spanish direct exposure at about $6.6 billion.

Seeing as these trading desks are run out of the London office, it would be fair to assume that these assets have been re-hypothicated to infinity and therefore JPM's indirect exposure, in the event of further deterioration in Spain, would be catastrophic.

Fri, 06/08/2012 - 12:52 | Link to Comment Conman
Conman's picture

Becasue its extremely easy to move a dead market. And the easiest way is up. Just wait for the algos to swtich to sell side and move it back down for shits and giggles.

Fri, 06/08/2012 - 12:55 | Link to Comment Sudden Debt
Sudden Debt's picture

Beats the hell out of me... Even banks are green...

Fri, 06/08/2012 - 14:25 | Link to Comment LULZBank
LULZBank's picture

Beats the hell out of me... Even banks are green...

Its the new initiative. Environmentally friendly banking.

Fri, 06/08/2012 - 12:59 | Link to Comment MeanReversion
MeanReversion's picture

Energy down, bonds up, copper down big, stocks up.  No logic whatsoever.

I'd expect the logic to turn more volatile leading up to Greek elections.  With the poll moratorium in Greece, the ever prescient market is rallying on nothing and has put Greece on the backburner.  The market is exercising wilful blindness about the upcoming elections right now.

Fri, 06/08/2012 - 13:40 | Link to Comment asteroids
asteroids's picture

Obama spoke. No other reason. The market will NOT go down if Obama, Ben, or Timmay speak. That is all.

Fri, 06/08/2012 - 14:39 | Link to Comment sbenard
sbenard's picture

... because central bankers have the attitude of, "Who needs and economy, since we have PRINTED prosperity now".

News and economics are now irrelevant. We have PRINTED prosperity now!

Fri, 06/08/2012 - 20:15 | Link to Comment Buck Johnson
Buck Johnson's picture

No volume and the PPT doing everything they can to have a positive Friday.  In all actuality this Friday should have been bloody as hell because of all the news.  And going into a weekend with Spain about to fall.

Fri, 06/08/2012 - 12:48 | Link to Comment LawsofPhysics
LawsofPhysics's picture

The financial terrorists speak.

Fri, 06/08/2012 - 12:50 | Link to Comment Roland99
Roland99's picture

President O did speak earlier this morning. Offering plenty of platitudes.

Fri, 06/08/2012 - 12:51 | Link to Comment francis_sawyer
francis_sawyer's picture

Like we're really supposed to pay captive attention to whatever comes out of the mouth of these homos?

Fri, 06/08/2012 - 13:07 | Link to Comment Tyler Durden
Tyler Durden's picture

You - no.

People who trade and have to know every piece of marginal, market-moving information, as well as which way momentum and focus is shifting - yes.

Fri, 06/08/2012 - 13:28 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Where is this "market" you speak of?

Fri, 06/08/2012 - 13:45 | Link to Comment resurger
resurger's picture

looooooooooool

+soap

Fri, 06/08/2012 - 13:50 | Link to Comment NotApplicable
NotApplicable's picture

These days we know it as the Fed-powered, algobot network.

Just think of it as a really, really efficient market. So efficient, it doesn't do anything other than to generate false signals.

Beyond human comprehension, one might say.

Fri, 06/08/2012 - 18:17 | Link to Comment francis_sawyer
francis_sawyer's picture

 People who trade and have to know every piece of marginal, market-moving information, as well as which way momentum and focus is shifting - yes

~~~

The 'PEOPLE' you refer to are fucking idiots (assuming they're sitting around waiting for the latest vowels & syllables to spew forth from the JPM cum filled mouths)...

Are you a 'TRADER'?... Yes ~ Then you're a fucking idiot (until this whole paper ponzi collapses)... So ~ if you're a MINUTE 2 MINUTE MARKET MOVING JUNKIE ~ based on the cum filled gargling of these insiders to determine your NEXT MOVE???...

Well, I rest my case... Have a good day...

Fri, 06/08/2012 - 12:59 | Link to Comment Dr. Engali
Dr. Engali's picture

Hey Morgue ,speaking of pain....how's that trade you're trying to unwind working for you? I'd like to see you feel some pain covering your short position on silver.

Fri, 06/08/2012 - 13:30 | Link to Comment mayhem_korner
mayhem_korner's picture

I'd like to see you feel some pain covering your short position on silver.

 

Patience.  That special day - a day of infamy  - will come.

Fri, 06/08/2012 - 13:52 | Link to Comment NotApplicable
NotApplicable's picture

Too bad JPM is merely an abstraction. There'll be no pound of flesh to obtain in return. Only broken promises and TARPS. Lots and lots of them.

Fri, 06/08/2012 - 12:54 | Link to Comment MeanReversion
MeanReversion's picture

Tom Lee: "BULLISH"

Fri, 06/08/2012 - 12:59 | Link to Comment midgetrannyporn
midgetrannyporn's picture

Some Ford Fairlane quotes for Jamie Dimon:

 

 

Ford Fairlane: Have a twinkie, snapperhead.

Lt. Amos: Are you calling me an asshole, asshole?
Ford Fairlane: No, I'm calling you an anus, anus.

Ford Fairlane: ...I hope you signed some organ donor cards.

Ford Fairlane: You're 10 seconds away from the most embarrassing moment in your life.

Ford Fairlane: So many assholes... So few bullets...

Ford Fairlane: Yo. Snapperhead.

Ford Fairlane: Un-fucking-believable.

Ford Fairlane: Here's to you, Jamie. Sucking my dick.

Fri, 06/08/2012 - 13:00 | Link to Comment pmm009
pmm009's picture

Someone explain why the Spanish government cannot look at which banks are healthiest, which banks are actually gaining deposits as Euros flee banks like Bankia, and then make an executive decision to close many of the banks and move the deposits to the stronger banks.  Write down the assets and allow the acquiring bank to take the assets at 20-30 cents on the dollar and clear the decks.  The new assets will balance out the hit the resulting banks will take on their existing bad loans. 

The market, the market, etc. etc.   Banks are not market instruments, they are tools of the Sovereign and implement signiorage.  Cut the crap and get it done.  Otherwise Europe is going to have to get ready for their next 6.

Fri, 06/08/2012 - 13:09 | Link to Comment Matt
Matt's picture

As far as I can tell, they don't have an FDIC to do that kind of thing.

Kind of late now; like having a whole town wait until there is a forest fire raging nearby, and have everyone run to the insurance agent and try to buy fire insurance on their homes.

Fri, 06/08/2012 - 13:03 | Link to Comment slackrabbit
slackrabbit's picture

"To provide some guide posts,our banking analysts have suggested recapitalization needs may ultimately run to €150bn if Irish experience is a template for the losses"

 

Umm yea right guys....Lets starts with two problems


a. the Irish did not have a huge housing bubble like Spain did

b. equating estimates of honesty when countries have differing rates based on culture, rule of law, tax avoidance rates, retirment ages and finally  social norms is a BIG mistake


Fri, 06/08/2012 - 13:11 | Link to Comment MeanReversion
MeanReversion's picture

Actually, Ireland did have a large housing bubble.  Half the borrowers there are underwater.  I know this market pretty well, and there is basically no bid for a huge swath of Irish property inventory.  I've seen 50-75% haircuts on properties sold.

Spain on the other hand had a housing bubble and a commercial real estate bubble.

Fri, 06/08/2012 - 13:06 | Link to Comment q99x2
q99x2's picture

No Government can stop the banksters from taking everyone's money. Something is wrong here and not going to end well.

Fri, 06/08/2012 - 13:07 | Link to Comment Memphis10
Memphis10's picture

What ever happened to Short JPM Long Silver?

Fri, 06/08/2012 - 13:12 | Link to Comment Vagabond
Vagabond's picture

The CME, BBs, Fed, and the authorized participants for GLD put a hurting on that trade... although now might be a great time to get back in it.

Fri, 06/08/2012 - 13:08 | Link to Comment Vagabond
Vagabond's picture

What's going on with Greece?  

Fri, 06/08/2012 - 13:09 | Link to Comment Al Huxley
Al Huxley's picture

Well gee, it's great to see that 'the Rajoy administration has already internalised objectives of fiscal consolidation and structural reform - and is seeking to bring its deficit to GDP ratio down by nearly 6 percentage points over two years'.  It's exactly these kinds of bold proclamations and 'commitments' that are the key to fixing the sovereign debt crisis in Europe.  As I've said before, I'm pretty sure that if enough politicians make enough stern speeches, promising to 'take bold action', 30+ years of debt-driven excess can be resolved painlessly, and in no time at all.

Fri, 06/08/2012 - 13:15 | Link to Comment Nawaralsaadi
Nawaralsaadi's picture

"A key question is whether this request for external support will serve to improve conditions in the Spanish bond market and raise Spain's chances of avoiding a broader support package. Our best guess is that it will not."

Is this is as good of a guess as their hedge book guesses? ..Spain is in a much better shape in comparison to the Portugal/Ireland/ and Greece, I don't see Spain needing a bail out, they have taken the bitter pill of real reforms, they will have a rough path for another year or so, but they will come out much faster and much stronger than the likes of France which is going backwards in terms of reforms. As a matter of fact Spain added jobs the last couple of months, their unemployment could have possibly peaked already.

It is also probable that the June 28th/29th will look for a comprehensive (temporary solution) that will likely paper over things in Europe for another year or two; a move toward a redemption fund would the best “temporary” solution, the market will go wild if they agree on that.

Regards,

Nawar

 

Fri, 06/08/2012 - 13:26 | Link to Comment disabledvet
disabledvet's picture

Is that the President's re-election going up in flames? Or is he saving it? I mean "where's the fire" here? Or are we talking Smoke and Mirrors bullshit AGAIN?

Fri, 06/08/2012 - 13:26 | Link to Comment Stock Tips Inve...
Stock Tips Investment's picture

Support for Spanish banks will be a first exercise to begin to know the true size of the problem in Europe. Also, see how they think the European authorities face the crisis.

Fri, 06/08/2012 - 13:28 | Link to Comment LongSoupLine
LongSoupLine's picture

Gotta love how JPM says "pain" is coming, while concurrently ramping ES, etc to fucktard levels on no volume.

Fuck you JPM and your prop desks that "don't exist anymore".  Assholes.

Fri, 06/08/2012 - 13:48 | Link to Comment azzhatter
azzhatter's picture

FUCK JPM and FUCK Jamie Dimon in the ass with a steak knife

Fri, 06/08/2012 - 14:05 | Link to Comment skepticCarl
skepticCarl's picture

Carefu, Azz.  Your Mom might put back on the parental controls on that computer in her basement.

Fri, 06/08/2012 - 14:28 | Link to Comment LULZBank
LULZBank's picture

Thats was funny man. LULZ were had!

Fri, 06/08/2012 - 15:38 | Link to Comment Wizard of Finance
Wizard of Finance's picture

JPM : "our banking analysts have suggested recapitalization needs may ultimately run to €150bn if Irish experience is a template for the losses that may ultimately accrue on the mortgage book"

All irish banks as a template ? aplicable to all spanish banks? small irrelevant difference of € 110bn with IMF?

 

just rounding differences for JPM, for London Whale standards.  

It seems JPM uses here the same tracking methodology brought in by Iksil. They could have also used 1575's Spanish Bankruptcy as a template, with much better correlation.

 

Fri, 06/08/2012 - 16:11 | Link to Comment tony bonn
tony bonn's picture

jpm is so full of crap...the slow fuse burning in their own bowels will be the cause of financial armageddon....they would do well to clean up their irswaps rather than dwell on spain's paultry 300-500 billion euro mess....jpm and deutsche bank are the fuses of economic catastrophe....

Fri, 06/08/2012 - 21:59 | Link to Comment afton
afton's picture

bank recapitalization...is there an app for that?

Sat, 06/09/2012 - 07:27 | Link to Comment MFL8240
MFL8240's picture

But bailout train to JPM front door is ok!

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