| 5 Yr. CDS | Jan. 1, 2007 | Jan. 1, 2008 | March, 14 2008 | Sep. 26, 2008 | Oct. 20, 2008 |
| Germany | 2.5 | 5.5 | 9 | 9 | 24.5 |
| France | 2.5 | 6.5 | -13 | 12.5 | 33.5 |
| Belgium | 3 | 13 | 27.5 | 21.5 | 50.5 |
| Spain | 3.5 | 17.5 | 45.5 | 40 | 72 |
| Italy | 8.5 | 20.5 | 47.5 | 41.5 | 80.5 |
| Greece | 7 | 19.5 | 59 | 52 | 98.7 |
| Portugal | 6 | 19 | 40 | 41.5 | 70.7 |
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Brown set to borrow more (FT)
By George Parker and Norma Cohen
Gordon Brown on Monday insisted the government would spend its way through the downturn. Mr Brown said Britain’s debt-to-gross domestic product ratio of 37.6 per cent was lower than main competitors – the eurozone average is 56.4 per cent – and could sustain higher borrowing. “It is because we cut the national debt over the past few years that we are able to do what is the right thing.” The £37.6bn half-year borrowing figure is the highest since the second world war in nominal terms, although relative to the size of the economy it is below that of the 1993/4 fiscal year, when John Major’s Tory government was fighting a recession. Treasury estimates of growth in tax receipts are far short of those forecast at the start of the fiscal year, rising at only 1.9 per cent year-on-year instead of the 5 per cent rate that had been expected.
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RLPC- European secondary loan prices breach 70 pct
By Zaina Espana
The low secondary loan prices reflect heavy forced selling by stressed investors that has also weighed on the battered LevX index of leveraged loan credit default swaps.
Around three billion euros of forced sales have flooded the thin and illiquid European secondary loan market in the last two weeks, several traders said.
The sales started with Icelandic banks’ portfolio sales and other European banks followed, but a portfolio sale from Sankaty last week marked a new phase of the selloff as managers of credit-driven collateralised loan obligation (CLO) vehicles started to throw in the towel, traders said.
Traders said Sankaty, the credit affiliate of private equity firm Bain Capital, put a $342 million portfolio of leveraged loans up for sale last Wednesday and fund manager Highland Capital followed in the United States with a $641 million portfolio of U.S. and European names.
Average bids on Europe’s top 40 leveraged loans have lost 225 basis points from last Friday’s level of 71.01 percent of face value to 68.76 on Monday, RLPC data shows.
While this madness continues, watch for results due out soon:
ECB Offers Banks Unlimited Dollars to Boost Lending (Update1)
By Christian Vits
(Bloomberg)- The European Central Bank offered banks unlimited amounts of dollars in two new tenders today as it steps up efforts to get financial institutions lending to each other again.
The Frankfurt-based central bank offered banks funds for 28 days via a currency swap in which it lends dollars against euros. In a separate tender with the same maturity, the ECB offered dollars against collateral at a fixed rate of 2.11 percent. In both cases it will fill all bids. Results will be published at 11 a.m. The loans start on Oct. 23 and mature Nov. 20.
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If growth continues to slow down this won’t be nearly enough to cover capital yet to be lost.
Also, with more slowing, the French deficit widens threatening their solvency and ability to fund:
France injects €10.5bn in the six largest banks; doubts about the 2009 GDP growth forecast
The French Finance Ministry said Monday night that the French government will inject E10.5 billion worth of fresh capital into the country’s six largest banks between now and the end of the year by purchasing subordinated debt securities.
Credit Agricole will get €3 billion, followed by BNP Paribas with €2.55 billion, Societe Generale with $1.7 billion and Credit Mutuel with €1.2 billion. Les Caisses d’Epargne will get €1.1 billion and Banques Populaires €950 million.
The banks have agreed to sell subordinated debt securities in those amounts, and they will carry a risk premium of about 400 basis points.
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And this includes the ‘appropriate collateral’ for the unlimited USD loans as well.
ECB extending collateral (to almost anything)
ECB extending collateral (to almost anything) and introducing more longer dated repos with full allotment. Significant points: acceptable ratings down from A- to BBB- (except for ABS) syndicated loans included, also wider range of currency. Quid pro quo is higher haircuts but fair enough. So virtually no excuse for any bank to run out of money. Also pretty positive for corp spreads.
As you predicted. The US taxpayer, via the Fed, is basically the dumpster receiving all of this toxic crap from Europe. That’s got to be dollar bearish longer term.
Until the the ECB is driven to sell euros to pay back the USD it borrowed from the Fed.
And no doubt there will be continuous politically driven responses that could tilt the outcome in any direction.
Our leaders are in this way over their heads.
All they needed to do was declare a payroll tax holiday- none of this had to happen.
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The total is now up to $354 billion including $100 billion in overnight funds added by the ECB.
Haven’t seen overnight funds by the Bank of England or Swiss National Bank.
Haven’t seen any Bank of Japan numbers.
ECB Leads Push to Flood Banks With Unlimited Dollars (update1)
Oct. 15 (Bloomberg) — The European Central Bank, Bank of England and Swiss National Bank loaned financial institutions a combined $254 billion in their first tenders of unlimited dollar funds, stepping up efforts to ease strains in markets.
The Frankfurt-based ECB lent banks $170.9 billion for seven days at a fixed rate of 2.277 percent. The Bank of England allotted $76.3 billion and the Swiss central bank $7.1 billion at the same rate, also for a week.
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The total of $279 billion is very high.
Note the seven day was higher than the one day, which could mean the longer term offerings will attract even more borrowers.
This is a lot of lending for the Fed to be doing to the ECB.
It also moves the USD debt in the Eurozone from the private sector to the public sector.
The private sector can default, declare insolvency, get ‘reorganized’, where the USD debt can be ‘converted’ to equity and functionally vanish, all to be written off by the creditors.
Public sector external debt doesn’t have that option, and thereby introduces systemic risk.
If the Eurobanks can’t/don’t repay the ECB, the Fed is left with the option of selling euros for USD for repayment.
And only if the ECB survives as a political entity.
It is not guaranteed by the national governments.
The ECB today offered banks unlimited dollar funds for seven days in the first tender of its kind, lending $170.9 billion. It also loaned an additional $100 billion for one day.
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(an email exchange)
Right,
If everyone in Germany tries to take their funds out of the banks they won’t get it, with or without the backing of the German government.
German government insurance can buy them some time, maybe even enough time to make it through if aggregate demand wasn’t falling off so fast.
In the U.S., U.K., Japan and any nation with its own currency and fiscal authority behind the deposit insurance you can get all the funds you want on demand.
>
> Finally, the Germans seem to get it. This might be the best news of the
> weekend. But they need to take the final step. Problem is there
> is no EU treasury or debt union to back up the single currency.
> The ECB is not allowed to launch bail-outs by EU law.
>
> Each country must save its own skin, yet none has full control of
> the policy instruments. How do they change this in a hurry?
>
With great difficulty!
Germany draws up contingency plans for state rescue of banks
By Bertrand Benoit
The German government was last night drawing up a multi-billion euro contingency plan to shore up its banking system, which could see the state guarantee interbank lending in the country and inject capital in its largest banks.
The contingency draft, closely modelled on the British initiative announced this week, marks a dramatic political U-turn for Europe’s largest economy after Angela Merkel, chancellor, and Peer Steinbrück, finance minister, both ruled out a sector-wide state rescue for banks this week.
A senior government official said Ms Merkel and Mr Steinbrück would decide on Sunday which of the measures to implement after consultation with their European partners. Once a political decision was made, he said, the plan could be implemented in the following days.
“We are considering all the options at present to the exception of a massive state acquisition of toxic assets,” the official said. “Whatever we do will be done in close co-operation with our G7 and European partners.”
France announced last night that it was planning an emergency European Union summit tomorrow.
Speaking in Washington ahead of a meeting of Group of Seven finance ministers, Mr Steinbrück said the time had now come for “a systemic solution . . . I am convinced that case-by-case solutions are no longer helping. They are now exhausted.”
The official said Ms Merkel was in daily contact with Nicolas Sarkozy, French president, suggesting that the plan, if approved, could be launched as a joint initiative.
Ulrich Wilhelm, the government spokesman, said: “It is the duty of the federal government to be prepared and to review all options . . . As of now, no political decision has been made.”
Under the draft, Germany could issue a state guarantee for interbank lending worth more than €100bn and provide direct lending to the banking sector. Berlin is also contemplating offering several dozen billion euros of capital to the banks in exchange for equity and may take entire ownership of some institutions.
As an additional option, the government is considering extending the blanket guarantee it issued last Sunday for account deposits to money market funds, which have experienced a steep outflow of savings lately. Fund managers have had to divest considerable quantities of assets to cover the withdrawals.
Bankers said the interbank lending market in Germany had reached near-gridlock.
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Europe is even worse off than I thought.
And it looks to me like the Fed’s loan (via swap lines) to the ECB is noncollectable:
Their only hope is a large enough US fiscal package that restores demand for world output.
Like my proposed payroll tax holiday that immediately adds maybe 5% to US GDP.
But the odds of that are not promising.
And the US economy continues to weaken rapidly.
(I own some German credit default insurance and wish I had bought a lot more.)
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What has been announced by ECOFIN (European Council of Finance Ministers) today:
- Deposit insurance to be raised from a minimum of EUR20k to EUR50k.
- There will be support/interventions for systemically important institutions; intervention shall be timely, and in principle temporary; shareholder shall bear the consequences of intervention; governments will have the ability to change bank management when intervening.
Bad for shares.
- Recapitalizations may be necessary.
- Interventions to be decided at a national level, but to be coordinated; senior financial officials to be in daily contact.
They are limited by relying on the national government’s ability to fund.
- Commission to provide rapid reviews of interventions; Commission to issue guidance on state-aid compliant deposit insurance and interventions/recapitalizations.
- Systemic liquidity to be ensured.
Maybe in Euro, but maybe not in USD which they all seem to need.
- Executive pay guidelines have been agreed; undue benefits shall not be retained; governments can intervene on manager pay.
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