France Bailing Out CIF, A Large Mortgage Lender

The collapse is now at the doorstep of France; which is surrounded by Spain; Italy; and is after all, the only country not officially part of the Club Med while the Club Med is actually a French company and laziness and corruption and lies a way of life.

(Bloomberg) — The French government, which rescued Dexia (DEXB) SA, now faces the challenge of saving real estate lender Credit Immobilier de France without spending taxpayers’ money.

Prime Minister Jean-Marc Ayrault said yesterday on radio station France Inter that a guarantee the state agreed to provide CIF won’t hurt the government’s budget. The state has so far been unsuccessful in finding a buyer for CIF, a Paris-based mortgage bank owned by 56 local cooperative lenders.

“The state has taken its responsibilities in providing a guarantee, but as this bank has its own capital, the money of taxpayers won’t be called upon,” Ayrault, 62, said in the interview on France Inter.

Finance Minister Pierre Moscovici said in a statement on Sept. 1 that the government would provide a guarantee for CIF. The backing is worth 20 billion euros ($26 billion), Les Echos reported today, without saying where it got the information. The rescue follows the state bailout of Franco-Belgian lender Dexia, which needed aid in 2008 and in 2011.

How the Plan for a Euro-Exit Would Rollout

RT interviews Roger Bootle, winner of the £250,000 Wolfson Prize for developing a practical plan to dissolve the Eurozone.

This is a very interesting interview and explains how the Grexit and the many other exits from the Eurozone to come will most likely happen.

The plan makes a lot of sense from a political point of view, as politicians will never allow for a real decline in wages and welfare. Even the case of a dual currency (say Drachma and Euro) is taken into account.

If you have any Euro exposure, you must watch this. The main thing to remember, is that if you have Euros in your account, and your country exists, you lose your Euro. But if you keep them outside of your country, you get to keep them. Be very careful about where you keep your money!

More Denial and Madness from Spain: Santander CEO Derides Surge in Spain Defaults and Spain Rules Out Bailout as De Guindos Says Banks Funded

This is a follow up to the post I wrote just a couple of days. Just listen to the completely unbelievable statements made from the CEO of Santander, one of the biggest banks in the world, which also happen to be a Spanish and most likely highly distressed one. He also makes the statement that "this place is different", one of the most dangerous sentences of the investment world:

April 27 (Bloomberg) — JPMorgan Chase & Co., the world’s largest bond underwriter, predicts that Spanish mortgage arrears will surge as unemployment rises. That’s also the view from the international debt market, which has driven up yields on Spain’s bonds in a bet the country will have to bail out banks. 

In Spain, Banco Santander SA Chief Executive Officer Alfredo Saenz said yesterday that’s nonsense. “Mortgages get paid in good times and in bad,” he said in a news conference at the bank’s headquarters outside Madrid. “Anyone raising this problem as one of the issues for the Spanish financial system is saying something stupid.”
[...] 

“There does seem to be a strange contrast between the high level of unemployment and the surprisingly low level of delinquencies on mortgages,” said Georg Grodzki, who helps oversee $515 billion as head of credit research at Legal & General Plc in London. “This raises the issue of whether loans have been amended to make them look current when in fact they are distressed.” 

The more than 600 billion euros ($792 billion) of outstanding home loans on the books of lenders may be the “next elephant” for Spain as unemployment spurs defaults, JPMorgan analysts including Roberto Henriques and Gareth Davies wrote in a report published April 26. Spain’s jobless rate rose to 24.4 percent in the first quarter, the highest level in 18 years, from 22.9 percent in the previous three months, the National Statistics Institute said today.
[...] 

Saenz said Spanish culture is part of the reason why default rates remain low.
[...]
“It’s a sociological thing and that’s how it is,” said Saenz.
Santander had 59.4 billion euros of loans made to Spanish households to buy homes at the end of 2011 out of a total loan book in Spain of about 200 billion euros. The default ratio was 2.6 percent in March, down from 2.7 percent at the end of 2011, the bank said. 

“The data is good so let’s not start debating the quality of the information,” said Saenz. “Mortgage arrears are not a problem and are not going to be a problem.”

Santander isn’t the only Spanish bank defending its mortgage loan quality.
People “tend to look at the negative side, the unemployed that we have here,” said Manuel Gonzalez Cid, chief financial officer of Banco Bilbao Vizcaya Argentaria SA, Spain’s second- biggest lender, in an April 25 webcast for analysts. “But we don’t look at all the people who are working, who are paying their mortgages and paying their loans in a very normal fashion.” 

Of BBVA’s 79 billion euros of residential mortgage loans in Spain, 2.37 billion euros, or 3 percent, were impaired at the end of 2011, according to the bank’s annual report.
[...] Based on Irish default levels, a similar trend in Spain would lead to losses of 59 billion euros for the banks there, according to the JPMorgan analysts. 

The picture is clouded by the increasing willingness of banks to change the terms of loans to help customers keep up loan payments. Bankia SA, Spain’s third-biggest bank, said April 24 that it’s making 110 changes to loan terms a day and that mortgages made up 45 percent of the 7,300 term adjustments it carried out in the first quarter. 

“Mortgages for individuals in all markets, including the U.S. and the U.K., normally are very resilient and resistant when the situation changes,” said Saenz. “That’s because mortgages get paid.” 

Has Saenz been living in a cave for the past 5 years?

And also: Spain Rules Out Bailout as De Guindos Says Banks Funded

April 27 (Bloomberg) -- Spanish Economy Minister Luis de Guindos ruled out seeking a bailout hours before Standard & Poor’s cut the country’s credit rating to three levels above junk and a report showed unemployment jumped close to a record. 

“Nobody has asked Spain, either officially or unofficially” to turn to Europe’s bailout mechanisms, he said in an interview in Madrid late yesterday. “We don’t need it.”

Greek Man Set Himself on Fire As Bank Refuses To Renogociate His Overdue Loan

It really hurts me every time I read or hear that the greeks are fighting against the lifeline the EU is giving them, or even when I hear that the Germans should bail out the Greeks.

To put things straight again: Greek banks and their European lenders have been bailed out, but not the citizens.

This gutting picture (courtesy of Reuters) illustrates why the Greek people should revolt, and take their corrupt politicians down, leave the European Fascist Union, and default the public and private debt. OK the picture is not from today, it dates back in September 2011. But hopefully, you get the point.

A man sets himself on fire outside a bank branch in Thessaloniki in northern Greece September 16, 2011.  The 55-year old man had entered the bank and asked for a renegotiation of his overdue loan payments on his home and business, according to police, which he could not pay, but was refused by the bank.

MF Global To Go Bust Over the Week-End?

What is MF Global?

MF Global, formerly known as Man Financial, is a major global financial derivatives broker. MF Global provides exchange-traded derivatives such as futures and options as well as over-the-counter products such as contracts for difference (CFDs), foreign exchange and spread betting. 

MF Global was the brokerage segment of Man Group until 2007, when the business decided to split the investment and brokerage businesses so they could each focus on their own markets. An IPO was done for the brokerage business which was renamed MF Global to distinguish it from the investment business which remained as Man Group. The company was registered in Bermuda but subsequently moved its registration and headquarters to the United States.

From Bloomberg:

Jon Corzine’s MF Global Holdings Ltd. was working through the weekend to consider options for the sale of the futures broker, according to a person with direct knowledge of the situation. 

The firm’s board met yesterday afternoon in New York, said the person, who asked not to be identified because the talks are private. MF Global was in discussions with five potential buyers for all or parts of the company, including banks, private-equity firms and brokers, a person with knowledge of the matter said on Oct. 28. 

Pressure is mounting on Corzine, the former governor of New Jersey and U.S. senator, after MF Global declined 67 percent last week, its bonds started trading at distressed levels and it drew down on its credit lines.

According to Yahoo Finance, the firm has about $30 billion of debt.
Total assets are about $45 billion while total equity is about $200 million.

CNBC has a good summary of the situation:

Thanks to my friend Mr H. for sending me the link to CNBC in the first place.

ISDA Says Greek 50% Writedown Not A Credit Event

ISDA says Greek 50% write down is not a credit event, and hence will not trigger CDS payments. The massive fraud perpetrated by the ISDA is simply unbelievable.

Needless to say, this is yet another massive transfer of wealth from people whose forecasts were right to those who are plain and simply losers.

What is going to be interesting is to find out whether there will be litigations around this decision, and even more importantly, whether the CDS market and instrument will survive in face of such a blatant fraud and theft.

Oct. 27 (Bloomberg) -- The European Union’s agreement with investors for a voluntary 50 percent writedown on their Greek bond holdings means $3.7 billion of debt-insurance contracts won’t be triggered, according to the International Swaps & Derivatives Association’s rules. 

ISDA will decide if the credit-default swaps should pay out depending on whether it judges losses to be voluntary or compulsory. European leaders said in today’s agreement they “invite Greece, private investors and all parties concerned to develop a voluntary bond exchange” into new debt. 

A last minute agreement was reached after banks, the biggest private holders of Greece’s government bonds, were threatened with a costly full default, according to Luxembourg Prime Minister Jean-Claude Juncker. The involvement of the Institute of International Finance, which represents lenders, also helped progress toward an accord that the EU could portray as non-mandatory.

“As long as the agreement is voluntary, then CDS aren’t triggered,” said Cagdas Aksu, an analyst at Barclays Capital in London. “Provided it’s voluntary, CDS wouldn’t be triggered unless the Greeks missed a payment.” 

David Geen, ISDA’s general counsel in London, didn’t immediately respond to e-mailed questions.

German Banks Plan Big Cut in Deposit-Guarantee Scheme

In case you thought that the FDIC and all the other such schemes would make your bank safe, you need to seriously reconsider your position and read the fine print of your insurance policies. If you didn't think it in the first place, this report will prove that you were right not to trust the government to save your savings...

The timelines are far ahead, but one can see already that only 100k€ are guaranteed. Which will obviously seem a lot to some, but very little to some others.

No wonder that people will withdraw their deposits and maybe even load up on Gold and Silver, which unfortunately, will be the wrong reaction in a credit implosion and cash shortage environment. The reason is simple: if you owe some institutions Euros, you'd have to sell your gold first, and then obtain euros. So this selling will provoke a drop in the value of gold, and the transaction costs will also impact negatively the amount of Euros you will receive.

Here's the report from the WSJ.

(Dow Jones)--Germany's commercial banks are proposing changes to the sector's voluntary deposit-guarantee fund that would result in a lower proportion of customers' deposits being protected if their bank fails than at present.

Currently, the voluntary fund set up by commercial banks guarantees customer deposits of its members by up to 30% of a bank's equity capital for each customer.

The BdB banking association, which represents banks including Deutsche Bank AG (DB) and Commerzbank AG (CBK.XE) and has 173 members, Thursday said it is proposing to lower the fund's guarantee to a maximum of 8.75% of equity capital for each customer by Jan. 1, 2025.

Under the proposal, on which BdB members will vote at a meeting on Oct. 17, the reduction will take place in three steps: the guarantee will drop to 20% on Jan. 1, 2015, then to 15% on Jan. 1, 2020, and to 8.75% on Jan. 1, 2025.

In Germany, there are two types of deposit guarantees. One is a legal guarantee of up to EUR100,000 for retail customers' bank deposits. In addition, each banking sector--commercial banks, savings banks, building societies and cooperative banks--has its own voluntary deposit-guarantee fund, known as Einlagensicherungsfonds.

Germany's commercial banks have been discussing reforming their voluntary deposit-guarantee scheme since the collapse of Lehman Bros.'s German arm led to the fund's capacity being exceeded. A broad banking crisis would also exceed the fund's capacity.

The Bdb said deposit protection for private and institutional customers will still remain high, even under the proposal.

For instance, EUR1.5 billion in guaranteed deposits would become EUR437,500 under the new rules, said Hans-Joachim Massenberg, a member of the BdB's board of managing directors. That is still four times higher than the EUR100,000 in retail deposits guaranteed by law and means that even higher retail deposits, such as from a property sale or the payout of a life insurance policy, would still be protected in their entirety under the new scheme, he said.

He noted that even after 2025, more than one third of Germany's commercial banks will be able to offer deposit protection of above EUR25 million, so that even institutional customers such as municipalities and pension funds will still be able to deposit funds within the boundaries of the new framework.

Commerzbank Chief Financial Officer Eric Strutz Thursday downplayed the impact of the proposed change. Under future capital requirements, banks will have to hold much more equity capital than in the past, when the fund was set up, so the effect of the lower guarantee will be very limited, Strutz told reporters on the sidelines of a banking conference.

Germany's cooperative banks said they will stick to the current 100% guarantee for customer deposits.

European Debt Crisis — The 2 min Video Which Explains Everything

I already posted this video back in July 2010 — about 15 months ago. As you can see, it's still very much a Zeitgeist, and nothing has been resolved:

Here's the YouTube link for those who do not see the embedded video.

BofA Strategist raise SPX Forecast from 1400 to 1450 While Greece 1Y Bond Hits 122%

As seen on BloombergTV and reported on ZeroHedge:

Just when one thought Wall Street could not become more full retard, here comes David "Kermit" Bianco who, perfectly oblivious of the world ending one broke European country at a time, has just released the following: "S&P 500 2011 year-end target remains 1400, 12-month target raised to 1450 from 1400 12-month target raised on time value and conviction in 2012 EPS being ~$100 barring recession." Barring recession? Has this "strategist" even looked at a TV in the past three months, let alone exited the island of lunatic asylum that is Manhattan? But wait, the humor continues, although we are 100% confident this joke of a snake oil salesman will be on CNBC any minute. As a reminder, Bianco had an S&P price target of 1650 until October 6, 2008, orafter the Lehman bankruptcy. He would end up being off by only well over 100%.
Key views and expectations:

• No US recession – but balance sheet repair and government policy angst weigh on GDP growth for extended period

• Global economy stays healthy (4.5%) in 2012, despite weak US (2.3%) and European (1.4%) growth, thanks to Asia

• In correction territory (under 1230), S&P 500 priced for a mild to avg. US recession. ~1200/~14x implies ~$85 2012 EPS

• No Fed Funds rate hikes until 2014, 10yr Treasury yield 3% at 2011 end, 4% at 2012 end and below 5% until 2015

• Oil prices stay high (WTI $85-100/bbl) but do not spike to new records – high commodity prices stimulate capex

• US business spending on equipment and software to rise at healthy pace, which benefits Industrials and Technology

• 2012 S&P EPS growth of 7% outpaces US GDP, led by S&P foreign (~40%) and business spending (~25%) exposures

• The huge disconnect between PE ratios and interest rates will spur acquisitions, share repurchases and dividend hikes

• We prefer high dividend growth stocks over high dividend yield stocks.  S&P 500 DPS estimates: 2011 $28, 2012 $38

• Overweight sectors most foreign and B2B exposed, underweight sectors most consumer and govt. spending exposed

• Discipline & courage earn gains – S&P 500 typically rallied 15%+ Sep-Jan when priced for a recession that didn’t come

Thinking that equity markets are only down 1% or the US indices only down about 15% from the May top makes me wonder how much more denial can the market take?

As I like to say, denial is the best friend of the bears.

While US Equity Futures Rally 5%, Greece 1Y Gov Bond Yield 97%

In less than 24 hours, the S&P 500 Mini Futures ES rallied more than [Update: 55 points] 40 points, and in the process, making me hit my stop (grrr). The good news is? Greece 1Y bond is trading with a yield of [Update: 97%] 93% now.

The massive one-two day rallies are very typical of bear markets. Sooner or later, the "buy the dip" and the "stocks are cheap" mentality will come to an end. But before than, investors losses will zoom. This is the mentality that allows for bear markets to continue their course, and for us, evil short sellers to make bundles.

Second Historical Chart Of The Day: Greek 1 Year Bond Yield At Above 80%

The year sovereign rate for Greece is above 83% now, which basically means that Greece is shut out of the debt market — a positive thing.

I won't bet against the market on this one, but it 83% is a sweet deal :-)

Fitch Call Greece Nth Bail-Out Package a "Default"

Every time a new bail-out news has been thrown out during the past few weeks, we have seen the risk-on trade make the markets jump sky high. Equities, commodities, the Euro are all a few percent points away from multi-year highs. How sustainable is this rally? I don't know. I never thought the irrational exuberance, the over-bullishness, and rosy view of market participants would last so long and would disregard the collapse that is happening before our eyes. Note that the same happened in 2007. I made the mistake to believe that the markets memory would last more than a couple of months.

Anyway, the news is out: Greece is rated as "default" by Fitch, and the other PIGS will also be downgraded soon:

WSJ—Fitch Ratings Inc. on Friday became the first of the three major ratings companies to say that a new aid package for Greece will put the country in "restricted default" and ratings of other peripheral euro-zone countries will also be affected.

Fitch said the Greek deal sets a "potential precedent" for private-sector involvement in sovereign-debt restructuring that will be incorporated into its ratings of Ireland and Portugal if those countries don't see a sustainable recovery by 2013.

Euro-zone leaders attending an emergency summit Thursday agreed to provide €109 billion ($157.22 billion) in new loans for Greece while the private sector will contribute an additional €50 billion through a bond-exchange and buyback plan.

They said in a statement that Greece "requires an exceptional and unique solution," and that other euro-zone countries "solemnly reaffirm their inflexible determination to honor fully" their own sovereign bonds.

"It is clear there is still much work to be done in all corners of Europe before we are firmly out of the stormy waters," Mr. Rehn said. "But the direction is now clear, and we have all reasons to be confident about getting there, as long as all the partners do their share of implementation rigorously."

The Greek bailout plan implies a 20% net present-value loss for banks and other holders of Greek government debt, Fitch said.

It will lower Greece to the relevant restricted-default rating at the end of the bond-exchange process, and then assign new ratings to the country when new bonds are issued. The new ratings are likely to be low speculative grade, Fitch said.

Fitch can rate an issuer RD if there is "a coercive debt exchange on one or more material financial obligations," according to the ratings company's website. Fitch currently rates Greece triple-C. It rates Ireland triple-B and Portugal triple-B-minus.

The move is in line with Fitch's statement in early June that it would judge as a default any exchange that offers new securities with terms worse than the original terms of the existing debt, and where the country is under financial distress.

The European Central Bank had repeatedly warned against any plan that would lead to a sovereign default, fearing the crisis could spread to other weak euro-zone countries. European Central Bank President Jean-Claude Trichet had made it clear the bank wouldn't accept defaulted bonds for its lending operations.
[...]
Greek Finance Minister Evangelos Venizelos said the bailout package assures that Greek banks will remain supported and capitalized.

"Under the plan the Greek banks' liquidity will be secured 100%," Mr. Venizelos told a press conference in Athens Friday.

In the bond markets, the euphoria that had greeted the announcement of the deal began to fade in afternoon trading in Europe Friday.

A few notes:

1. "The direction is clear"? I still see no direction to be honest, plans are changing every day or so. Moreover, it looks like the plan is to load up on more debt and make sure the collapse of the other Eurozone countries — all are insolvent except Germany — happen sooner. Politicians are really so ignorant.

2. The plan involves a 20% haircut and a roll over of the remaining debt. Yet, financial "experts" and politicians are criticising Fitch for calling it a "default". In the real world (outside of the realms of politicians) you have to call a spade a spade.

3. Kicking the can down the road seems to have now reached a limit: in 2000 they managed to squeeze 7-8 years. In 2008-2009, they managed to kick the can 2 years further. Last year, they managed to make another year with the Greek bailout, but this year, every month or now weeks brings the limits... Seems like we have now reached a one/two-day period.

4. Trichet has yet again been slapped. And it's a well deserved one. His arrogance and ineptitude have really now limits.

"Greece is a goner, it's completely out of their control" says Terry Keeley

Here's one amazing interview of Terry Keeley on BloombergTV. Why amazing? Because Terry couldn't be clearer and yet more simple and realistic about what will happen for Greece. The political, financial and sentiment reasons are all explained in a cristal clear way.

May 31 (Bloomberg) -- Terrence Keeley, senior managing principal at Sovereign Trends LLC and a Bloomberg Television contributing editor, discusses the outlook for additional aid to Greece from the European Union.

Bullish Development for US T-Bills: China Has Sold 97% of Its Holdings

A few days ago, in a post titled Treasuries Notes Rise for Seventh Week, the longest streak in more than two years I wrote how extreme negative sentiment was the source of current rally in Treasury Notes and that I did expect this to continue.

So far, the rise of treasuries and the deflation trade have continued as expected. Many people continue to show extreme bearishness, and continue to talk about hyper-inflation and US defaulting...

(CNSNews) - China has dropped 97 percent of its holdings in U.S. Treasury bills, decreasing its ownership of the short-term U.S. government securities from a peak of $210.4 billion in May 2009 to $5.69 billion in March 2011, the most recent month reported by the U.S. Treasury.
[...]
Mainland Chinese holdings of U.S. Treasury bills are reported in column 9 of the Treasury report.

Another very bullish news for treasuries is that China has sold 97% of their T-Bills holding. At first you might think I've lost it and that it is the opposite. But then, consider that they have sold this huge amount of treasuries, and that the market rose nonetheless. It shows a lot resiliency in the demand (thank you Ben Bernanke...) and also shows that there aren't many sellers left (except of course the treasury department themselves...).

Catastraphic Yet Realistic Vision Of The Consequences of A Default In The Eurozone

In the interview on Yahoo Daily Ticker on the 24th of May, John Maldin goes into the details of what would happen if a sovereign country of the Eurozone would default. Taking the example of Greece, which is very likely to default in the next few months, he builds quite a catastrophic yet so realistic vision of such a disaster.

If Greece decides to not fulfill its obligations — not even talking about default, because the simple term default would trigger hundred of billions of dollars worth of credit default swaps and other exotic derivatives — the following points are from the interview, but I have augmented them with my own details:

• All Greek dept held by Greek banks is automatically zero — since nobody is going to lend any money to Greece anymore, they would better default on the whole of the debt, and not just take a hair cut.
• German and French banks would then automatically default, because all the billions of Greek debt they hold would be wiped out. And banks all over the world have to write their debt down — particularly the European banks.
• The ECB has to write their debt down, and the debt of all the banks it holds. The ECB will then be facing a conundrum: print money — illegal in this case — or force all the countries of the Eurozone, to contribute to recapitalize the ECB which barely holds 10 billion euros of capital — forcing the credit quality of the Eurozone countries to deteriorate even more.
• The contagion will be worldwide, of course.

John Maldin just published a book titled Endgame: The End of the Debt SuperCycle and How It Changes Everything which I haven't read yet. You might want to check it (sponsored link).

Greece Considers Exit from Euro Zone

Der Spiegel reports:

The debt crisis in Greece has taken on a dramatic new twist. Sources with information about the government's actions have informed SPIEGEL ONLINE that Athens is considering withdrawing from the euro zone. The common currency area's finance ministers and representatives of the European Commission are holding a secret crisis meeting in Luxembourg on Friday night.

What a good news for the Eurozone, and what a sad one for the Greeks who still have some savings: if that happens, they will get the value of their savings stollen.

This is just the result of the lack of courage of politicians who are unable to stop giving away free money to every citizen in order to buy their votes, and do also lack the political courage to default properly instead of going through all this unproductive hoops and loops.

H/T to my friend Mikeul for sending me the link.

Irish Gov Stabs their People in the Back while the Icelandic Thrive...

It is ironic how the Irish government decided to stab their people in the back, and take their money to bailout not their own banks, but all the banks in the Eurozone who lent money to these insolvent banks.

Iceland is doing so much better now that they have defaulted and, even more ironic, what ignorant analysts and economists believe is an inconvenient for the government is actually a blessing for the people: the fact that the government from Iceland cannot borrow on the markets is a very very positive side effect of this default, and I do hope that once the western civilisation as we know it has defaulted on their debt — no country is solvent except maybe Germany — they will introduce constitutional laws to prevent governments from running deficits and borrowing money — as Germany did a couple years ago.

Irish Bow to Trichet on Bondholders as Rescue Hits $142 Billion

April 1 (Bloomberg) -- Ireland yielded to the European Central Bank to protect bondholders even as its bailout bill for the region’s worst banking crisis moved to as much as 100 billion euros ($142 billion) after stress tests.

The ECB in Frankfurt was “solidly opposed” to imposing losses on investors in senior bank debt, Finance Minister Michael Noonan told broadcaster RTE today. The ECB agreed to provide “ongoing” funding for the banks, he said.

Ireland agreed yesterday to inject as much as 24 billion euros into four banks, while leaving bondholders untouched. The government already funneled 46.3 billion euros into the financial system and set up an agency that paid more than 30 billion euros to assume risky property loans. The total equates to about two-thirds the size of the Irish economy.

“The government’s position is very clear: It doesn’t want to take action on senior bondholders for the four banks that are going forward,” said Matthew Elderfield, head of regulation at the central bank, said in an interview with Bloomberg Television. “It recognizes that, on balance, that if you want to have these viable banks able to return to the market that would hurt their capacity to do that.”

Standard & Poor’s Ratings Services today cut Ireland one notch to BBB+ from A-, though revised its outlook to stable.
[...]
As recently as March 28, Agriculture Minister Simon Coveney said the government planned to impose losses on senior bondholders in the banks to cut the costs of its bailout.

“Taking all of the losses of the banking system and putting them on the balance sheet of the government doesn’t make sense,” Nouriel Roubini, co-founder of Roubini Global Economics LLC, said today in an interview from Cernobbio, Italy, with Maryam Nemazee on Bloomberg Television’s “The Pulse.” “Eventually, the back of the government will be broken.”
[...]
“Rather than go after over 20 billion euros in unguaranteed bonds, the government is making ordinary citizens bear the burden of this debt,” Gerry Adams, leader of nationalist party Sinn Fein, said in statement today. “Rather than act in the interests of the Irish people they are acting in the interest of the banks.”
[...]
The decision not to seek burden-sharing with senior bondholders “is a recognition of reality that Ireland is depending on continued funding for its banks from the ECB, which is setting the rules,” said Dermot O’Leary, chief economist at Goodbody Stockbrokers.

Icelanders Reject British, Dutch Depositor Bill a 2nd Time

April 10 (Bloomberg) -- Icelanders rejected a depositor claims accord with the U.K. and Netherlands for a second time in as many years as voters signaled they don’t want their tax funds to cover foreign losses caused by a private bank.
[...]
The bill, which set the terms for covering the depositor losses, was rejected by President Olafur R. Grimsson in February after being passed by a two-thirds majority in parliament.

“Nowhere does it say that Iceland is legally obliged to pay for this ridiculous Landsbanki adventure,” said Stefan Gunnarsson, a shop assistant in downtown Reykjavik. “If a court finds that we are legally responsible, so be it. Until then: No thanks.”

Grimsson said in a Feb. 23 interview he rejected the accord because Iceland’s legal obligation to pay is “unclear,” adding the matter shows that European banking laws haven’t been “thoroughly thought out.” The referendum let the people decide “whether private citizens, taxpayers, should be obliged to repay the losses created by a private bank,” he said then.

The latest Icesave accord would cost the state about 47 billion kronur ($419 million), while the remaining debt will be covered using the proceeds of Landsbanki assets, the negotiating committee representing Iceland said in December. Britain is lending Iceland 2.35 billion pounds ($3.85 billion) to cover the depositor losses, while the Netherlands is lending 1.3 billion euros ($1.9 billion).
[...]
Gunnarsson said the referendum is “a wakeup call for the citizens in other countries.”

“They’ll realize that there’s no fairness in pushing bank losses onto taxpayers when things go sour, but pocketing the gains when everything is going well,” Gunnarsson said. “A big fat ‘no’ from Iceland will drive that point home.”

Failure to resolve Icesave through a referendum “could easily muddy the waters,” central bank Governor Mar Gudmundsson said in a speech on April 7. A no vote “would impede foreign borrowing and delay capital account liberalization, although it is not clear how strong or persistent these effects would be.”
[...]
Iceland has relied on a $4.6 billion bailout led by the International Monetary Fund and on capital controls to prevent a sell-off of the krona. The caps, which the central bank estimates are stopping investors from selling about $3.6 billion in krona assets, have allowed the trade surplus to support the exchange rate and limit import price gains. The central bank has cut rates 15 times in two years as inflation eased to within the bank’s 2.5 percent target.
[...]

Icelanders Reject Depositor Bill, Forcing Year-Long Court Fight

April 11 (Bloomberg) -- “What is clear is that there will be a downgrade from Moody’s and perhaps Standard & Poor’s,” said Asgeir Jonsson, an economist at Reykjavik-based asset manager Gamma. “This will force the government to postpone its plans to enter the international bond markets.”

The European Free Trade Association’s Surveillance Authority in May last year started infringement proceedings against Iceland under its obligation to cover all depositor claims. Those proceedings, which had been shelved during Iceland’s parliamentary handling of Icesave, will now be resumed, said Sigurdur Lindal, a law professor at the University of Iceland.

“A ruling from the EFTA Court isn’t formally binding on Icelandic authorities, although it does set a precedent,” Lindal said in a phone interview. “The U.K. and the Netherlands will likely claim that Iceland discriminated against depositors depending on nationality. However, that matter is not in any way clear cut.”

Grimsson said the referendum “enabled the nation to regain its democratic self-confidence and to express sovereign authority in its own affairs,” in a speech yesterday. Three days after his veto, he said he rejected the accord because Iceland’s legal obligation to pay is “unclear,” adding the matter shows that European banking laws haven’t been “thoroughly thought out.”

The result of the Icesave referendum shows most voters agree. [...]

Portugal Government Collapses — Irish Readying a Hair Cut on Bond Holders — Euro Euphoria Sill On

I do not like to state the obvious, but...

... It was obvious that asking the people of Portugal whether they wanted an austerity plan after 40 years of borrowing to spend and living beyond their means had absolutely no chance of succeeding. Moreover, the debt is currently so high, that no austerity plan can make these sovereign countries solvent again. So it is just wasted efforts and time to the ineluctable end game: default (partial or complete) on the debt. This is what Ireland is discovering, and what Greece will discover soon, and then the dominos will start falling.

The statement made by Socrates: "This crisis occurs in the worst possible moment" actually made me laugh. Crisis always occur at the worst possible moment, since they were in the making for 20 or more years, but nobody wants to tighten their belt during the "good times" and when money is flowing like someone was actually printing it — or was it actually the case??

And as usual, economists come with their suggestion that these insolvent countries should borrow from the IMF and the EU in order to become solvent. Good lord. One doesn't become solvent by borrowing more and getting more into debt. I think a 5 year old would understand that.

In case you missed this video, it's a fantastic one:

March 23 (Bloomberg) Portuguese Prime Minister Jose Socrates said he presented his resignation to President Anibal Cavaco Silva after parliament rejected the government’s deficit- cutting plan, raising the chance of an international bailout.

Socrates made the announcement tonight in an address to the nation after meeting with Cavaco Silva at the president’s residence in Lisbon. “This crisis occurs in the worst possible moment for Portugal,” Socrates said.
[...]
“If parliament decides on a motion against the stability and growth program, that means the government is not in a condition to make commitments internationally,” Socrates said on March 15. “That would mean a political crisis. In my understanding, the consequence of a political crisis is the worsening of the financing risks of our economy and would lead Portugal to request external intervention.”
[...]
Portugal intends to sell as much as 20 billion euros of bonds this year to finance its budget and cover the cost of maturing debt. Portugal faces bond redemptions in April and June worth about 9 billion euros in total. It also faces bill maturities in July, August, September, October and November.

“With bond yields stubbornly high and heavy debt redemptions due over the next few months, it appears all but inevitable that Portugal will be forced to follow Greece and Ireland in accepting financial support,” economists Emilie Gay, Roger Bootle and Jonathan Loynes of Capital Economics Ltd. wrote in a note yesterday.

March 17 (Bloomberg) -- Irish Prime Minister Enda Kenny said it’s “grossly unfair” that taxpayers alone should carry the cost of bailing out the country’s banks as he pushed for lower rates on a European-led rescue loan.

Kenny, on a visit to Washington where he says he’s trying to repair Ireland’s “damaged” reputation, called for changes to the aid package by the European Union and the International Monetary Fund to avoid a situation where Ireland struggles to pay back its loan and can’t generate economic growth.

“It is grossly unfair to expect the taxpayer to have to pay 100 percent for the reckless lending practices of banks which caused this in the first instance,” Kenny said yesterday in an interview with Bloomberg Television’s “InBusiness With Margaret Brennan” broadcast today. The 5.8 percent average rate Ireland pays for its loans is “too severe,” he said.

Kenny’s Fine Gael party took power last week after pledging to seek a European agreement on sharing the cost of rescuing the financial system with senior bank bondholders. His government is counting on ongoing stress tests to reveal the full extent of potential losses at the country’s lenders, after injecting 46.3 billion euros ($64.4 billion) into the financial system over the past two years.

Kenny stopped short of saying who should pay along with taxpayers. Asked about the treatment of senior bondholders, Kenny said that his government will put no additional cash into banks “until you see the scale of what the liability is, until there is an understanding of what might be here.”

Kenny met with Treasury Secretary Timothy F. Geithner yesterday as part of his U.S. visit. He will hold talks with President Barack Obama today and attend the annual White House reception for St. Patrick’s Day, Ireland’s national holiday.

The Irish prime minister vowed to keep the nation’s corporate tax rate “intact” to attract foreign investors, adding that his country is “open for business.”

Less than a week after failing to obtain a discount on the rate charged by the EU because of Ireland’s refusal to increase the country’s 12.5 percent company tax, Kenny repeated he is not willing to negotiate it.

“It’s not correct to equate a conditionality of a reduction in interest rates with the condition that a corporate tax is increased,” he said. “I am not prepared to compromise on something that is the individual competence of each country in respect of our corporate tax rates.”

The premium investors charge to hold Irish 10-year debt over the equivalent German bunds, Europe’s benchmark, was little changed today at 641 basis points. It reached a record of 680 on November 30, two days after the bailout.

Citigroup Inc. Chief Economist Willem Buiter said EU leaders are “playing with fire” by not acceding to Ireland’s request as it may force the country to restructure its debt unilaterally.

“They have to come up with something for Ireland,” Buiter said. “They’re going to have to make concession or Ireland will have no option but to go it alone.”

French President Nicolas Sarkozy and German Chancellor Angela Merkel at a March 11 euro-area leaders summit refused to extend a cut of Greece’s borrowing costs to Ireland as Kenny pushed back on taxes. Ireland has used the rate, which is about half the EU average, to lure companies such as Hewlett-Packard Co. and Pfizer Inc.

Ireland pays an average 5.8 percent interest rate on the 67.5 billion euros of aid from the IMF and the EU. Kenny said he expects to obtain “some flexibility” from Europe.

Feb. 28 (Bloomberg) -- Enda Kenny will push for the quick formation of an Irish government and the re-negotiation of an international bailout after what he called a “democratic revolution” reshaped the nation’s political landscape.
[...]
He’s seeking to lower the 5.8 percent interest rate on the bailout loans and end the protection of senior bank bondholders.

“We can count on a good match forthcoming with Germany and France in one corner and Ireland in the other as a Battle Royale gets played out in front of a worldwide audience,” Mark Grant, managing director at Southwest Securities Inc. in Fort Lauderdale, Florida, said in an e-mail yesterday.
[...]
Kenny said the bailout cost is “too much” and he’ll seek agreement to ease the terms, including the existing protection of senior bank bondholders. EU Economic and Monetary Affairs Commissioner Olli Rehn said on Feb. 15 there is “no appetite” for imposing losses on senior bondholders at Irish banks.
[...]

The People of Iceland will decide by referendum whether they would like to bail out the British and the Dutch

I have been following the Icelandic story since the beginning and share with my loyal readers the various steps and also my personal opinion about the whole story (see here).

Well, I am happy to report today that it seems like democracy sometimes work. They, the People Of Iceland, have managed to get their president to block the agreement to bail out the Brits and Dutch and to vote via a referendum as to whether or not each of Icelanders should pay $42,000 to this end. In my opinion, the outcome is obvious: they have no business and no interest bailing these people, and nor should have their government agree to do so in the first place.

Note that the UK and Netherlands are getting sour, and that diplomatic relations might get tense, but if you really think about it, it means that these governments are not happy with the fact there is a working democracy in Iceland. Indeed, the UK government bailed out all their banks (that was the headline news) but in the process, it is actually the lenders to these banks who have been bailed out, while the UK has burdened their citizens with hundreds of billions of pounds worth of debt (that's the real fact that mainstream media won't tell you).

Feb. 21 (Bloomberg) -- Iceland’s President Olafur R. Grimsson will give his country’s voters the final say on repaying about $5 billion in debts owed to the U.K. and the Netherlands to cover depositor claims.

Grimsson’s announcement yesterday that he won’t sign a depositor accord struck between the three countries’ governments in December follows lawmaker approval of the bill. He told reporters he was responding to popular demand for a referendum after more than 42,000 of Iceland’s 318,000 inhabitants signed a petition asking him to block the accord. Forty-four of the Reykjavik-based parliament’s 63 lawmakers voted for the bill on Feb. 16.

“There is support for the view that the people should once again, as before, act together with the parliament as the legislator in this matter,” Grimsson said.

Yesterday’s announcement marks the second time Grimsson has rejected an agreement designed to compensate the U.K. and Netherlands for depositor losses stemming from the October 2008 failure of Landsbanki Islands hf. His Jan. 5, 2010, refusal to sign a prior accord prompted Fitch Ratings to cut Iceland’s credit grade to junk. Moody’s Investors Service and Standard & Poor’s give Iceland’s debt the lowest investment grade.

Grimsson’s decision threatens to sour relations with the U.K. and Netherlands after Iceland’s government persuaded the two countries to negotiate a new deal following last year’s rejection of the previous accord.

“We have taken note of the decision, negotiations are over and an initialled agreement is on the table,” Niels Redeker, a spokesman at the Dutch Finance Ministry, said by phone yesterday. “We expect the Icelandic government to consider the new situation and to contact us about what will follow.”

The U.K. Treasury said it also has “noted” Grimsson’s decision to block the latest agreement and that it looks forward to “clarification of the Icelandic position in the coming days,” in an e-mailed statement.

The latest so-called Icesave accord, named after the high- yielding accounts offered by Landsbanki, would cost the state about 47 billion kronur ($404 million), while the remaining debt will be covered using the proceeds of Landsbanki assets, the negotiating committee representing Iceland said in December. The British and Dutch governments bore the initial cost of backing the depositor claims.

Though the December Icesave accord is “significantly improved,” it still carries “significant risk,” according to Valdimar Armann, an economist at Reykjavik-based asset manager GAMMA. A slide in the krona, currently shielded by capital controls, could as much as triple the final cost, he estimates.
[...]
More than 350,000 British and Dutch Icesave account holders risked losing their savings when Landsbanki collapsed along with the rest of Iceland’s over-leveraged banking system in 2008. Moody’s, Standard & Poor’s and Fitch indicated last month they would consider raising their ratings on the island’s debt should Icesave be approved.

The 2008 failure of Landsbanki, Glitnir Bank hf and Kaupthing Bank hf led to the collapse of the currency and forced Iceland to go to the IMF to get a $2.1 billion loan, with a further $2.5 billion pledged by Nordic nations.

Ivory Coast Defaults

Not much to add to the following Bloomberg report, except maybe the now common "I told you so". Once this overbullish and irrational exuberance settles, and the markets get sober again, equities and commodities will hit the wall of reality: we are not in V-shaped recovery. We are in the midst of the Greater Depression.

Ivory Coast bonds sank to a record low 36 cents on the dollar on speculation the West African nation will be in default on $2.3 billion of securities today.
[...]
While the International Monetary Fund said the nation had $3.28 billion of foreign-currency reserves as of September, the government is unlikely to make the $29 million interest payment initially due Dec. 31 before a 30-day grace period expires, said Felix Dornaus, who holds Ivory Coast bonds at Erste Sparinvest KAG in Vienna. President Laurent Gbagbo, 65, and his rival Alassane Ouattara, 69, who both claimed victory in the November elections, say the other is responsible for the payment.

A “last minute payment cannot be excluded, but is very unlikely,” Dornaus, who helps manage about 1.4 billion euros ($1.9 billion) in emerging-market debt, said yesterday. Thierry Desjardins, the Paris-based chairman of the London Club group of commercial bank creditors that hold Ivory Coast debt and vice president of sovereign debt restructuring at BNP Paribas SA, said he was unaware of any payment being made.

The Emerging Markets Traders Association in New York posted a “market practice recommendation” for Ivory Coast bonds on its website yesterday, following consultations with “major market participants.” The bonds should, unless otherwise agreed, trade “flat” and settle at an all-in price without additional payment for accrued interest. Buyers will be entitled to unpaid interest and related claims, according to the recommendation.