Credit Suisse

"Suckers" - Alan Grayson discusses the Federal Reserve's purchase of debt from Bear Stearns, including debt from recently foreclosed Red Roof Inn's.

Instead of opting for a publicly transparent BWIC in the disposition of its Maiden Lane II assets, the Fed has once again gone opaque - long a critique of the Fed's practices which have required repeated FOIAs in the past to get some clarity on its secret bailouts and transactions - and proceeded with a private sale, without any clarity on the deal terms, in which it sold $7 billion in face amount of Maiden Lane II assets direct to Credit Suisse. The alternative of course would be the same snarling of the MBS and broadly fixed income market that we saw in June of last year. In other words, the Fed looked at the options: transparency and risk of grinding credit demand to a halt, or doing what it does best, which is to transact in the shadows, and avoid capital markets risk. It opted for the latter. As to why the Fed decided to go ahead with a deal shrouded in secrecy? "The New York Fed decided to move forward with the transaction only after determining that the winning bid represented good value for the public." "I am pleased with the strength of the bids and the level of market interest in these assets," said William C. Dudley, President of the New York Fed. Because if there is one thing Bill Dudley and the Fed knows is gauging what is in the best interest of the public... and the callorie content of the iPad of course.

The world's biggest primary silver miner, Fresnillo, had flat silver production in 2011. Output is only expected to remain stable in 2012.  African Barrick Gold said on Wednesday fourth quarter gold production fell 11% and missed its annual production targets. Despite price rises seen in 2011, gold and silver mining is remaining static contrary to claims by gold bears that higher prices would lead to increased production and therefore increased supply. Geological constraints may be impacting mining companies ability to increase production of the precious metals. Standard Bank has said it lowered its average 2012 gold price forecast by 6 percent to $1,780 an ounce, but continues to expect prices of the precious metal to touch new highs in the latter half of this year.  "We maintain that gold will reach new highs this year but, given our dollar view, we believe that these highs will be reached only in the second half of 2012," the analyst said in a note. Standard Bank expects the U.S. dollar to gain strength, especially against the euro, over the next quarter. A few other banks have recently lowered price forecasts for gold, including ANZ and Credit Suisse – however the majority remain bullish on gold’s outlook for 2012.

When yesterday we presented the view from CLSA's Chris Wood that the February 29 LTRO could be €1 Trillion (compared to under €500 billion for the December 21 iteration), we snickered, although we knew quite well that the market response, in stocks and gold, today would be precisely as has transpired. However, after reading the report by Credit Suisse's William Porter, we no longer assign a trivial probability to some ridiculous amount hitting the headlines early in the morning on February 29. Why? Because from this moment on, the market will no longer be preoccupied with a €1 trillion LTRO number as the potential headline, one which in itself would be sufficient to send the Euro tumbling, the USD surging, and provoking an immediate in kind response from the Fed. Instead, the new 'possible' number is just a "little" higher, which intuitively would make sense. After all both S&P and now Fitch expect Greece to default on March 20 (just to have the event somewhat "priced in"). Which means that in an attempt to front-run the unprecedented liquidity scramble that will certainly result as nobody has any idea what would happen should Greece default in an orderly fashion, let alone disorderly, the only buffer is having cash. Lots of it. A shock and awe liquidity firewall that will leave everyone stunned. How much. According to Credit Suisse the new LTRO number could be up to a gargantuan, and unprecedented, €10 TRILLION!

All you need to read.

• Hedge Funds Try to Profit From Greece as Banks Face Losses (Bloomberg)
• Spain Doubles Target in Debt Auction, Yields Down (Reuters)
• Italy 1-Year Debt Costs More Than Halve at Auction (Reuters)
• Obama to Propose Tax Breaks to Get Jobs (WSJ)
• GOP Seeks to Pass Keystone Pipeline Without Obama (Reuters)
• Debt Downgrades to Rise ‘Substantially’ in 2012, Moody’s Says (Bloomberg)
• Petroplus wins last-minute reprieve (FT)
• Geithner gets China snub on Iranian oil as Japan plans cut (Bloomberg)
• Fed officials split over easing as they prepare interest rate forecasts (Bloomberg)
• Draft eurozone treaty pleases UK (FT)
• Premier Wen looks at the big picture (China Daily)
• US Foreclosure Filings Hit 4-Year Low in 2011 (Reuters)

The earlier bomb scare at Credit Suisse's 1 Madison Avenue HQ may have been a hoax (or, considering this news, a diversion) but the sneaky announcement that the Swiss bank is preparing to fire 49 employees, once again courtesy of the DOL's appropriately named WARN website, is all too real. And since we are now deep in (lack of) bonus season, expect banking layoff announcements to start popping up daily if not hourly. As for the Unmagnificent 49: goodbye 1, welcome 99.

Just because Credit Suisse bankers are people too (even if 1% people, but still people), and just because they know too damn well that "no ECB intervention" means "no bonus", and very likely "no job", they go for broke and join Deutsche Bank, JPM, RBS, and everyone else (but, again, not Goldman), in predicting the end of Europe unless Draghi does his rightful duty and remembers that without banker support he will also be lining up at the jobless claims office very soon. Of course, being a Goldman boy, Draghi will only do what Lloyd tells him to. Either way, here is Credit Suisse's rejoinder to the global Mutual Assured Destruction tragicomedy, which now makes Honk (as Lagarde calls him) Paulson's overtures to congress seem like amateur hour. "We seem to have entered the last days of the euro as we currently know it. That doesn’t make a break-up very likely, but it does mean some extraordinary things will almost certainly need to happen – probably by mid-January – to prevent the progressive closure of all the euro zone sovereign bond markets, potentially accompanied by escalating runs on even the strongest banks. That may sound overdramatic, but it reflects the inexorable logic of investors realizing that – as things currently stand – they simply cannot be sure what exactly they are holding or buying in the euro zone sovereign bond markets...One paradox is that pressure on Italian and Spanish bond yields may get quite a lot worse even as their new governments start to deliver reforms – 10-year yields spiking above 9% for a short period is not something one could rule out. For that matter, it’s quite possible that we will see French yields above 5%, and even Bund yields rise during this critical fiscal union debate." Of course, the explicit message is: help us ECB-Wan Kenobi, you are our only hope. The implicit one is: do it, or we pull the trigger and blow it all up to hell.

Remember the DOL's very appropriately named WARN website we noted some time ago which warns investment bankers they are about to be made redundant (at least someone is being honest)? Well, it may be time to refresh, especially if you work at Credit Suisse (and sorrry, no bumping rights - should have thought about that before joining a non-union job).

Hmmm: Who is the Swiss PM and who is the Goldman Sachs advisor for Switzerland?

Gold ETF data shows continuing safe haven flows and diversification into gold. Global holdings of gold rose last week, by nearly 897K oz, their largest weekly rise since the week ending Aug 5 2011, when holdings rose by a net 1.089M oz, according to Reuters.  Total gold ETF holdings stand at around 68.854M oz, up a full 1.749M oz in the last month. November is shaping up to show the largest monthly inflow since July. So far this month, holdings have risen by 947K oz. Goldman Sachs today reaffirmed that it remains overweight in commodities. On gold it says it will roll over its Dec 11 long to Dec 12. "We expect gold prices to continue to climb in 2011 and 2012 given the current low level of  US real interest rates, and as a result recommend a long gold position.  Credit Suisse has said that gold may climb over $1,800 in the coming days with negative real interest rates as the ‘key driver’.

Yesterday, when describing the situation in Europe, Robert Rennie, chief currency strategist in Sydney at Westpac said, "with Italy we’re talking about the third-largest government bond market in the world going into a meltdown situation." That meltdown situation could commence as soon as a few hours from now when the 2010 budget review is voted on. Here is Credit Suisse Giovanni Zanni summarizing the probability outcome matrix for Italy between today's key vote and the November 15 multi-year budget votes, both of which are implicit votes of confidence in Italian PM Silvio Berlusconi, whose position over the past month or so has been controversial, to say the least. In summary the outcome probability is as follows: no elections and new "national unity" government: 30%; no elections and broad center-right coalition government: 30%; early elections: 30%; and Berlusconi stays: 10%.

A day after Credit Suisse killed the Chinese bank sector saying that the equity of virtually the entire space may be worthless if NPLs double, as they expect they will to about 10%, the Swiss bank proceeds to kill European banks next. Based on the latest farce out of Europe in the form of the third stress test, which is supposed to restore some confidence, it appears that what it will do is simply accelerate the flight out of everything bank related, but certainly out of anything RBS, Deutsche Bank, BNP, SocGen and Barclays related. To wit: "In our estimation of what could be the “new EBA stress test” there would be 66 failures, with RBS, Deutsche Bank, and BNP needing the most capital – at €19bn, €14bn and €14bn respectively. Among the banks with the highest capital shortfalls, SocGen and Barclays would need roughly €13bn with Unicredit and Commerzbank respectively at €12bn and €11bn. In the figure below we present the stated results. We note RBS appears to be the most vulnerable although the company has said that the methodology, especially the calculation of trading income, is especially harsh for them, negatively impacting the results by c.80bps." Oops. Perhaps it is not too late for the EBA to back out of this latest process and say they were only kidding. And it gets even worse: "We present in this section an overview of the analysis which we published in our report ‘The lost decade’ – 15-Sep 2011. One of our conclusions was that the overall European banking sector is facing a €400bn capital shortfall which compares to a current market cap of €541bn." Said otherwise, we can now see why the FT reported yesterday that banks will be forced to go ahead and proceed with asset firesales: the mere thought of European banks raising new cash amounting to 75% of the entire industry's market cap, is beyond ridiculous. So good luck with those sales: just remember - he who sells first, sells best.

Wonder why China just bailed out its banks, preemptively, on Monday? Here's why. In a report issued by Credit Suisse's Sanjay Jain, the China strategist, who joins such now infamous skeptics as Bank of Countrywide Lynch's David Cui, has revised his base case Non Performing Loan ratio forecast from 4.5%-5.0% to 8.0%-12.0%: a unprecedented doubling in cumulative losses. Why unprecedented? Because as he explains, this could "would work out to 65–100% of banks’ equity." Crickets? Yes, Credit Suisse just singlehandedly said the equity value of the entire Chinese banking system is between 66% and 100% overvalued (with a downside case of $0.00). So for those putting two and two together, on one hand we have the four horsemen of the Chinese apocalypse, already presented visually before by Bank of America, consisting of i) a surge in underground lending, ii) a property downturn, iii) bad bank debt and iv) and "hot money" outflows, and on the other we have the vicious loop of what this means in terms of a central planning reaction. Simply said look for China to scramble to undo all the signals that it had been trying to spark while it was fighting with the Fed-inspired inflation bubble. Only problem is that like in the US and Europe, finding the Goldilocks point where all 4 are in equilibrium will be next to impossible, especially if investors in the country's banks realize the equity they hold is worthless and scramble to get the hell out of Dalian. Then the fears over a parliamentary vote in Slovakia will seem like a pleasant walk in the park.

In the past week, almost every single sellside bank and their mother has released a report on "what happens to the US if there is a [default|debt extension|compromise|zombie apocalypse (if one believes Tim Geithner)]. Sure enough, here is Credit Suisse with its three scenarios. This is notable as it presents the binary outcomes for the stock markets as a result of what develops in Congress. The scenarios are: i) debt ceiling extension (market up 3%); ii) debt ceiling not extended (market down 15%); iii) default (market plummets by at least 30%). Of course, if there is really is a default it is game over for equity markets but that is a moot point. Either way, any report that has zero mention of the word gold when contemplating the impact of a US default goes straight into the garbage. Such as this one.