Portugal

Moody's Downgrades 16 Spanish Banks, As Expected

As was leaked earlier today, so it would be:

  • MOODY'S CUTS 16 SPANISH BANKS AND SANTANDER UK PLC
  • MOODY'S CUTS 1 TO 3 LEVELS L-T RATINGS OF 16 SPANISH BANKS
  • MOODY'S DOWNGRADES SPANISH BANKS; RATINGS CARRY NEGATIVE

In summary, the highest Moodys rating for any Spanish bank as of this point is A3. But luckily the other "rumor" of a bank run at Bankia was completely untrue, at least according to Spanish economic ministry officials, so there is no need to worry: it is all under control. The Banko de Espana said so.

European Financials Hit Six Month Lows; 12 Down Days In A Row

European financials dropped for the 12th day in a row today on heavy volume with its biggest 5-day drop in six months and plunging back to their worst levels in over five months (just 5% off last November's swing lows which would take us back to March 2009 lows). European equity and credit markets are all negative now YTD having given up all their gains and heading back to pre-LTRO levels. Sovereigns continue to bleed wider - especially Spain and Italy, with the former getting closer to the 450bps LCH Margin Hike level by the day. Spanish bond spreads are 165bps wider year-to-date - well done Draghi - and while Italy and Portugal are still tighter on the year, they have decompressed significantly in the last few weeks as we also note the all-saving EFSF is also a dramatic 14bps wider on the year. Europe's VIX jumped even higher near 35% - remaining very high relative to US VIX.

Chris Martenson: "We Are About To Have Another 2008-Style Crisis"

Well, my hat is off to the global central planners for averting the next stage of the unfolding financial crisis for as long as they have. I guess there’s some solace in having had a nice break between the events of 2008/09 and today, which afforded us all the opportunity to attend to our various preparations and enjoy our lives.

Alas, all good things come to an end, and a crisis rooted in ‘too much debt’ with a nice undercurrent of ‘persistently high and rising energy costs’ was never going to be solved by providing cheap liquidity to the largest and most reckless financial institutions. And it has not.

Guest Post: The Fabled Greek Mega-Bailout

At various stages in the last two years everyone from China, to Germany, to the Fed to the IMF, to Martians, to the Imperial Death Star has been fingered as the latest saviour of the status quo. And so far — in spite of a few multi-billion-dollar half-hearted efforts like the €440 billion EFSF —  nobody has really shown up. Perhaps that’s because nobody thus far fancies funnelling the money down a black hole. After Greece comes Portugal, and Spain and Ireland and Italy, all of whom together have on the face of things at least €780 billion outstanding (which of course has been securitised and hypothecated up throughout the European financial system into a far larger amount of shadow liabilities, for a critical figure of at least €3 trillion) and no real viable route (other than perhaps fire sales of state property? Sell the Parthenon to Goldman Sachs?) to paying this back (austerity has just led to falling tax revenues, meaning even more money has had to be borrowed), not to mention the trillions owed by the now-jobless citizens of these countries, which is now also imperilled. What’s the incentive in throwing more time, effort, energy and resources into a solution that will likely ultimately prove as futile as the EFSF?

The trouble is that this is playing chicken with an eighteen-wheeler.

Greece: Before And After

In one of the most fascinating psychological shifts, there has been a massive shift in the perspective of the Greek electorate since the election two weeks ago. Almost as if the size of the actual votes for Syriza, the far-left anti-bailout party, gave citizens 'permission' to be angry and vote angry. The latest opinion polls, as per Credit Suisse, show the center-right New Democracy party crashing from 108 seats to only 57 as Tsipras and his Syriza colleagues soar from 52 seats to a hugely dominant 128 seats. Is it any wonder the market is pricing GGBs at record lows and 'expecting' a Greek exit from the Euro as imminent given the rhetoric this party has vociferously discussed. On the bright side, the extreme right Golden Dawn party is seen losing some of its share. As UBS notes, "expressions of frustration in debtor countries have their analogue in creditor countries as well. No one is happy with the status quo." Still, how Europe's political leaders address voters' grievances will go a long way to determining the fate of the Eurozone and, quite possibly, the course of European history in the 21st century. Europe's politicians will undoubtedly prevaricate and deny. The troika will, with minor modifications, probably insist on 'staying the course'. Yet it seems to us that ignoring clear voter demands for change might well be Europe's worst choice.

Dart 1: Greece 0; And Just Desserts For Lemming PSI Participants

Two months ago, to much fanfare, Greece and the IIF announced what a smashing success the forced cram down that was the Greek PSI (memories of GM and Chrysler should be flooding back here) was. The thinking went that Greece avoided bankruptcy, co-opted lemming creditors avoided pursuing what is rightfully theirs in exchange for a 75% haircut, hold out hedge funds would be blown out of the water for daring to not go with the herd of 96.6%, but most importantly, Europe was saved! Today, Europe is no longer saved, and all those hedge funds that folded like cheap lawn chairs in agreeing to Europe's extortion are getting annihilated, because as the chart below shows, the NEW Greek bonds have now seen their dollar price cut in half since the PSI. Which means that total looses on original Greek debt, for those who did agree to the PSI's arm-twisisting terms are now about 90%. Just desserts. But what happened to those other few who followed our advice, bought UK-law bonds, and told the group to shove it? Here's what...

Frontrunning: May 16

  • Facebook's selling shareholders can't wait to get out of company, increase offering by 25% (Bloomberg)
  • Boehner Draws Line in Sand on Debt (WSJ)
  • Romney Attacks Obama Over Recovery Citing U.S. Debt Load (Bloomberg)
  • BHP chairman says commodity markets to cool further (Reuters)
  • Merkel’s First Hollande Meeting Yields Growth Signal for Greece (Bloomberg)
  • Greek President Told Banks Anxious as Deposits Pulled (Bloomberg)
  • EU to push for binding investor pay votes (FT)
  • Martin Wolf: Era of a diminished superpower (FT)
  • China’s Hong Kong Home-Buying Influx Wanes, Midland Says (Bloomberg)
  • U.N. and Iran agree to keep talking on nuclear  (Reuters)
  • US nears deal to reopen Afghan supply route (FT)

Overnight Sentiment: More Of The Same

Overnight: just more of the same, as markets collapsed, first in Asia, then in Europe, on ever more concerns what a Greek exit would do to Europe. The most important story of the night was a report in Dutch Dagblad claiming that ECB has turned off the tap for Greek bank liquidity: "At the end of January, Greek banks had received EUR73 billion in liquidity support from the ECB, but this amount has dropped by more than 50% now, according to the newspaper. The ECB is cutting back support because Greece has been holding off on recapitalizing its banking system, despite receiving EUR25 billion in funds for that purpose, the paper says." Whether this move is to force Greece to blink (even more) by making the previously reported bank run even more acute, or just general European stupidity, is unclear but it is certain to make the funding stresses across all of Europe far more acute. The news sent all peripheral bond yields soaring, and the EURUSD tumbling to under 1.27 briefly. 

Euro-Dumpfest Continues As LTRO Banks Implode

Just when you thought you'd seen the worst, its gets worsterer. While US equities are oscillating in a broad range trying to ignore the Eurocalypse, European asset markets had one of the worst days of the year today across the board. Spanish and Italian bond spreads are 40bps wider this week alone (adding 15-20bps today) and Portugal (sorry Stevie) are 52bps wider this week as our prediction that a compressed basis would remove any technical support for the bonds has come true. With sovereigns deteriorating rapidly, and given the forced contagion of the LTRO program, it is no surprise that financials are imploding. Senior and Subordinated credit spreads are underperforming dramatically with Subs +90bps and Seniors +55bps in May, while high-yield credit is 100bps wider and broad European equities (Bloomberg's BE500 index) are tracking them lower now practically unchanged for the year (and back below its 200DMA). Of course, while Greek bank runs are accelerating (and are likely beginning in Spain) and ASE is at all-time lows, the hope remains that if things get ugly enough, the ECB will save the day and Draghi will magically re-appear. The hope of another LTRO is meaningless, though likely inevitable, as it will only exacerbate the stigma that we have been so accurate on. With collateral in short-supply, especially in Spain, any further encumbrance will crush LTRO-facing bank debt and equity-holders via subordination and so it may make sense to be even more long the 'stigma' divergence between LTRO and non-LTRO.

Is Spain In Danger Of An Imminent LCH Margin Hike?

The Greek new-election news this morning pushed sovereign spreads wider across the board in Europe. Spain and Italy have leaked back off those high spread levels in the last hour (while Portugal has not) but critically, Spain is rapidly approaching a very significant Maginot Line, as noted by Bloomberg's chart-of-the-day today. In the past (in the case of Portugal and Ireland) when the bond spread on European sovereigns relative to AAA-rated European debt has reached 450bps, the LCH has slapped on significant margin hikes. At a time when cash/collateral is in extremely short-supply (as indicated most obviously by the rapid deterioration in EUR-USD basis swaps recently), Spanish 10Y spreads are perhaps a day or two of weakness away from the point of no-return. When Portugal broke this level it rapidly accelerated from 450bps to over 800bps in less than three months.

It's Official: Greece To Pay May 15 Bond Maturity

Earlier, we reported on media speculation that this was a done deal. We now get confirmation.

  • GREEK FINANCE MINISTRY TO PAY EU435 MLN BOND
  • GREECE SAYS TODAY'S DECISION DOESN'T PREJUDICE FUTURE DECISIONS - no, just those you have to COMPLY with

In other words, just as Zero Hedge predicted in January, non-Greek law bondholders, who did not comply with the PSI, had all the leverage. And again: congratulation to all those who were not Steve Rattnered into agreeing to the PSI, and held out: the 135% annualized return is worth it. Just keep this in mind when the PSIs of Portugal, Ireland, Spain and Italy take places next.

Risk Off As Greek Chaos Returns

With the Greeks unable to hug it out and new elections (as per Venizelos and Kammenos) all but guaranteed, the probability that Greece will exit just went to 11 on the dial. Markets hiccupped and plunged, giving up all the German GDP gains and then some. EURUSD traded back below 1.2800 - trading 1.2780 as we post, S&P 500 e-mini futures dumped 13 points now below yesterday's lows, Europe's DAX took a dive, and all European sovereign bond spreads tore higher dominated by Portugal, Spain, and Italy (+38-48bps on the week now). Credit spreads are gapping wider in Europe and the US. Commodities, which had been limping a little higher - on weaker USD and growth-hopiness we suppose - have reversed those gains with Silver and Oil underperforming. Treasuries and Bunds in lockstep and notably lower in yield - to lows of day.

Bundesbank Confirms German Gold Held By FED, BOE and Banque De France

Germany's Bundesbank confirmed yesterday that the German gold reserves are held overseas by the Federal Reserve, the Bank of England and the Banque de France. The German parliament, the Bundestag, has been examining the accounting of German gold reserves at the Bundesbank. The parliament's Budget Committee, one of the most powerful committees in the German parliament, had requested a critical report by the Federal Audit Office. "The decision has been unanimous," the paper quoted the Christian Social Union budget expert Herbert Frankenhauser. The newspaper report alleged "account cheating" regarding the German gold reserves. According to a Bild report, the federal auditing office complained of "inadequate diligence of the accounting of the gold reserves, which are stored in some foreign countries. Repatriation of the gold reserves is encouraged.” The Bundesbank confirmed that it, like many central banks, keeps part of its reserves in vaults at foreign central banks and said some of its gold is held at the Federal Reserve Bank of New York, the Banque de France and the Bank of England. It declined to say how much gold in total is held overseas or how much gold is stored with the Federal Reserve, Bank of England and Banque de France. The Bundesbank statement said it had complete confidence in the integrity of the central banks where the gold is held. "From these central banks, the German Bundesbank annually gets confirmation of the gold holdings in troy ounces as a basis for its accounting," the Bundesbank’s statement said.