China Officially Launches Critical Local Government Debt Swap — But Is The PBoC Really Just Issuing Treasury Bonds?Submitted by Tyler Durden on 05/19/2015 22:30 -0400
China has pitched its local government debt swap program as a way for heavily-indebted provinces to deleverage. Now that the program is officially off the ground, what are the implications for banks and for the PBoC?
"The borrowings of governments, households, companies and financial firms have risen in almost every big country around the world since the year 2000, relative to their GDP," The Economist notes. Here, graphed, is the evolution of the world's debt addiction from 2000 to 2014.
- Tsipras Endgame Nears as Greek Bank Collateral Evaporates (BBG)
- Shi'ite forces ordered to deploy after fall of Iraqi city (Reuters)
- Ratings agency Fitch to downgrade many European banks (Reuters)
- Bubble Blowing to Continue So Long as Yellen Isn’t Raising Rates (BBG)
- Greece's Debt Battle Exposes Deeper Eurozone Flaws (WSJ)
- Obama to set new limits on police use of military equipment (Reuters)
- China April home prices fuel hopes of bottoming out, but long road to recovery (Reuters)
- Hedge Funds Close Doors, Facing Low Returns and Investor Scrutiny (NYT)
- ASIC's Greg Medcraft 'quite worried' about Sydney, Melbourne house prices (Fin Review)
According to Fitch, nearly 40% of credit in China is outside bank loans, meaning that between forced roll-overs, the practice of carrying channel loans as "investments" and "receivables", inconsistent application of loan classification norms, and the dramatic increase in off balance sheet financing, the 'real' ratio of non-performing loans to total loans is likey far higher than the headline number.
As data on non-performing loans at Chinese banks shows the biggest sequential increase on record in Q1, Fitch wonders if perhaps the data actually obscures a far larger problem. Official figures on China's NPLs are obscured by a number of factors and may be grossly understated the ratings agency suggests. Furthermore, Fitch says "a protracted downturn in property markets could threaten the solvency of Chinese banks, given their modest loss-absorption capacity."
If the U.S. economy really is improving, then why are big U.S. retailers permanently shutting down thousands of stores?
It has been a story of two markets so far, with China's Shanghai Composite up another 3% in today's continuation of the most ridiculous, banana-stand driven move of the New Normal (and there have been many ridiculous moves in the past 6 years) on the previously reported hints that the PBOC is gearing up to start its own QE, while Europe and the Eurostoxx are lagging, if only for the time being until Citadel and Virtu engage in today's preapproved risk-on momentum ignition, on Greek jitters, the same jitters that last week were "fixed"and sent Greek stocks and bonds soaring. Needless to say, neither Greek bonds nor stocks aren't soaring following what has been the worst week for Greece in months.
With the USDJPY's ascent to 125, 150 and higher having seemingly stalled just under 120, with concerns that the BOJ may not monetize more than 100% of its net debt issuance suddenly surfacing, the BOJ and the Nikkei would take any help they could get. They got just that an hour ago when Fitch downgraded Japan's credit rating from A+ to A, citing lack of sufficient structural fiscal measures in FY15 budget to replace deferred consumption tax increase.
Following the default on major Chinese developer Kaisa this week, and with the continued softness in the Chinese property market, many are asking who's next among the highly-leveraged firms. However, as The Real Deal's Konrad Putzier notes, Kaisa’s default carries significance for New York’s real estate industry. Chinese investors spent $3 billion on New York properties in 2014. Many in New York continue to associate Chinese real estate companies with limitless funds and a never-ending ability to invest... But what if they are wrong?
Moody's puts $3 billion in student debt-backed ABS on default watch leading us to wonder when 30% delinquency rates in a market where nearly $1.3 trillion in credit has been extended will finally result in the bursting of what is America's most spectacular debt bubble.
Yanis Varoufakis’ publisher, Public Affairs Books, posted a promo for an upcoming book by the Greek Finance Minister, due out only in 2016 that reveals a few things that haven’t gotten much attention to date. Varoufakis simply analyzes the structure of the EU and the eurozone, as well as the peculiar place the ECB has in both. Some may find what he writes provocative, but that’s beside the point. It’s not as if Europe is beyond analysis; indeed, such analysis is long overdue. Indeed, it may well be the lack of it, and the idea in Brussels that it is exempt from scrutiny, even as institutions such as the ECB build billion dollar edifices as the Greek population goes hungry, that could be its downfall. It may be better to be critical and make necessary changes than to be hardheaded and precipitate your own downfall.
Emergency legislation can be drawn up over-night. While Austria may be the first in enacting bail-in legislation there is no guarantee that savers, particularly in the peripheral nations, will receive any indication that their deposits may be at risk.
Update: GREECE GOVT DENIES PLAN TO DELAY APRIL 9 IMF PAYMENT: REUTERS
For now the algos can't decide if Greece is joking about making the payment or joking about not making the payment.
While we wait to see which “well capitalized” bank will be the next to crumble under the weight of mountainous writedowns occasioned by the sudden souring of “riskless” assets, we get to read the DuesselHyp post-mortem, which shows that the bank was effectively AIG’d by Eurex.
With the rest of the developed world's central banks waiting for the Fed to admit defeat for one more year and delay its proposed rate hike (or launch NIRP/QE4 outright) it was all about China (the same China which a month ago we said would launch QE sooner or later) and hope that its central bank would boost asset prices, when over the weekend the PBoC governor hinted that more easing is imminent to offset the accelerating drag after he admitted that the nation’s growth rate has tumbled "a bit" too much and that policy makers have scope to respond. How much scope it really has now that its bad debt is rising exponentially is a different question. It got so bad, Shanghai Securities News leaked a false rumor earlier forcing many to believe China would announce an unexpected rate cut as soon as today, in the process sending the Shanghai Composite soaring by 2.6%.