World economy talk

[uls]

i mentioned in a post above re interbank lending

guess what?

Standard Chartered has been reducing exposure to the eurozone by taking cash out of eurozone interbank lending

Barclays has also been also reducing exposure

[Monseratto]

Anyone wants to invest with a Italian bank?

Euro turmoil puts bank capital raisings under strain

European banks’ ability to raise capital is coming under strain – with increasing concern that bookrunners could be left holding the stock of a $1.4bn rights issue that is being carried out by an Italian bank.

As confidence continues to be eroded by a failure to solve the European sovereign debt crisis, bank shares fell sharply this morning following scenes of violent street protests in Athens and Barcelona raised fears that the Southern European economies will not be able to pay their debts.

The decline in financial stocks is putting further pressure on banks’ ability to raise capital, with bankers unnerved by one Italian bank that is in the market, whose share price is just 3% off its rights issue price. This means that the 16 banks involved in the deal could be on the hook if the underwritten deal falls further.

Unione di Banche Italiane earlier this month launched a $1.4bn rights issue, in which shareholders are entitled to purchase eight new shares for every 21 held, at a subscription price of €3.808.

However, the share price has sunk from €4.60, when the deal was launched, to €3.93 in early trading this morning. A further fall of 3% and the shares would breach the rights issue subscription price, meaning investors will have no incentive to buy the stock from the banks. The 16 banks could then be left with much of the $1.4bn issuance.

The subscription period for the fully underwritten rights issue end on June 24, with any option rights not taken up to be offered on the stock market within a month following the end of the period.

One head of equity capital markets of a bank, who declined to be identified, told Financial News: “We haven’t seen a bank rights issue in this much difficulty since HBOS.”

A spokeswoman for UBI said the bank would issue an official statement later in the afternoon to update the market on the progress made in the capital increase. Centobanca, which is part of UBI, is one of the three global coordinators on the deal.

The other two global coordinators are Morgan Stanley, which declined to comment, and Mediobanca, which did not return calls seeking comment in time for publication.

UBI and Banco Popolare, another Italian bank, are the two worst-performing members of the Bloomberg European Banks Index so far this year. Their shares have plunged by 35% and 36%, respectively, over that period.

The decline in confidence for bank capital raisings is badly timed for Spanish cajas on the road ahead of a planned initial public offering over the next few weeks. These Spanish savings banks have been forced into a restructuring, and any failure to raise the funds needed is likely to end in a nationalisation, or a sale, the government has warned.

Banca Civica, advised by Credit Suisse and Morgan Stanley, started yesterday a road-show aimed at raising $1.1bn. Bankia, which started meeting investors last week, is trying to raise as much as $4bn, helped by UBS, Deutsche Bank, JP Morgan, Bank of America Merrill Lynch, Bankia, Barclays, BNP Paribas and Banco Santander.

One hedge fund manager, who has attended the investor roadshows, said that investors are only willing to buy into the flotations with “savage discounts”. He said: “The cajas face a tough reality – but they are not realists assuming this very tough environment.

Both Bankia and Banca Civica have both said they plan to continue with their initial public offerings while they keep an eye on the markets.

A failure of those deals would have dire consequences for the rest of the European banking sector and Europe as a whole, as markets fears that Spain, Europe’s fourth-largest economy, is too big to bail out.

Meanwhile, the credit markets were affected, with the cost to insure $10m of Greek debt increasing overnight by $174,000 to $1.9m, while investors had to pay $25,000 more, or $312,000, to insure $10m of Spanish debt, according to Markit. The cost to insure the same amount of Irish and Portuguese sovereign debt surpassed $800,000 for the first time.

“Risk appetite has disappeared as sovereigns continue their capitulation from yesterday,” Gavan Nolan, a credit analyst at Markit, said. “The impasse within the institutions of the EU, as well as the political and social upheaval within Greece, has roiled the markets. Contagion is the main fear, so it is worth watching Spain’s sovereign CDS as an indicator.”

[uls]

the cost of borrowing euros in the interbank market continues to rise

3-month euribor at 1.510%

3 month Euribor rate - current rates and charts

[Monseratto]

Later tonight, the "reshuffled" Greek goverment will put to a confidence vote. The ruling party has a slim 5 seat majority. Latest poll puts 47% of Greeks are against the austerity plan...

[uls]

Twitter

FLASH: Fitch says if U.S. debt ceiling not raised by August 2 then will put U.S. on rating watch negative

[Monseratto]

Hehehe...there goes Merkel's "Vienna Initiative". She better come up with a more convincing and acceptable solution. Or she can do what the Brits are suggesting and abandon the Greeks... Enough is enough.

BBC News - Greece: Voluntary bank help would be a default
21 June 2011 Last updated at 08:23 GMT

The Fitch credit ratings agency has said that if commercial lenders roll over their loans to Greece, it will deem the country to be in "default".

Fitch Ratings believes that any softening of terms by commercial banks would come only as a result of political pressure and therefore cannot be deemed "voluntary".

Categorising a borrower as "in default" will mean a further lowering of Greece's credit rating.

This is already deemed to be "junk", meaning that lenders are not expected to get back anything like the value of their original loan.

A further downgrade to default would mean a fire-sale of Greek loans, as certain investors would no longer be allowed to hold such risky assets.

Another agency, Standard & Poor's, has also warned that any attempt to restructure the country's debt would be considered a default.

The third leading agency, Moody's has a rating on Greece's debt that implies a 50% chance of a reneging on repayment within three to five years.

[uls]

12 MN Athens time (5PM NY time) we'll know if the Greece govt survives a no confidence vote

if the govt survives the vote, the parliament will vote on an austerity plan on June 28

the bailout fund will only be released when the austerity plan passes

[Monseratto]

12 MN Athens time (5PM NY time) we'll know if the Greece govt survives a no confidence vote

if the govt survives the vote, the parliament will vote on an austerity plan on June 28

the bailout fund will only be released when the austerity plan passes

BBC News - Greek government survives confidence vote

The Greek government has won a critical vote of confidence in parliament as it struggles to win support for extra austerity measures and avoid a default.

Prime Minister George Papandreou's new cabinet was approved by 155 votes to 143, with two abstentions

[Ry_Tower]

BBC News - Greek government survives confidence vote

aba, nakalusot ngayon ah.

[uls]

it was expected

the euro actually fell after the vote

sell the news

[uls]

Fed 2-day meeting (Tues-Wed)

tonight we'll know the result of the meeting

expect no change in main interest rate (still 0-0.25%)

expect the "extended period" language

expect no QE3

expect the Fed to maintain size of balance sheet -- QE2 ends June 30 but the Fed will reinvest proceeds from maturing securities

[uls]

FRB: Press Release--FOMC statement--June 22, 2011

To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent. The Committee continues to anticipate that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate for an extended period. The Committee will complete its purchases of $600 billion of longer-term Treasury securities by the end of this month and will maintain its existing policy of reinvesting principal payments from its securities holdings. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

[uls]

liquidity shortage in China

1 week SHIBOR

[uls]

Portugal 2 yr yield


Ireland 2 yr yield

[tidus1203]

WTi down more than 5%.

Good news? Not for me. That's demand destruction... Bad economy...

[uls]

IEA to release 60 million barrels of oil over coming months

60M barrels isnt a lot of oil

but the market reacts

[Monseratto]

IEA to release 60 million barrels of oil over coming months

60M barrels isnt a lot of oil

but the market reacts

[tidus1203]

Actually that news for me is mute, what really moved oil today is RISK OFF and CASH IS KING. DJIA down more than 200 pts...

[Ry_Tower]

Then I guess the drop will not hold once the market realizes its overall (minimal)effect.

[Monseratto]