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HenryTo
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 Posted: Sun Oct 23, 2011 2:14 pm Post subject: European Banks |
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Solid deal still not in place--but the decision to force larger haircuts (in lieu of a Greek default) onto banks is definitely a done deal.
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Big banks under pressure in Europe crisis
Banks under pressure in Europe crisis, pushed to raise capital, take Greek losses
BRUSSELS (AP) -- Big banks found themselves under pressure in Europe's debt crisis Saturday, with finance chiefs pushing them to raise billions of euros in capital and accept huge losses on Greek bonds they hold.
The continent's biggest financial institutions were at the center of talks as leaders entered marathon negotiations in Brussels, at the end of which they have promised to present a comprehensive plan to take Europe out of its crippling debt crisis.
"Between now and Wednesday we have to find a solution, a structural solution, an ambitious solution and a definitive solution," French President Nicolas Sarkozy said as he arrived in Brussels. "There's no other choice."
In addition to new financing for Greece, leaders want to make the banking sector fit to sustain worsening market turmoil and turn their bailout fund into a strong safety net that will stop big economies like Italy and Spain from falling into the same debt trap that has already snapped Greece, Ireland and Portugal.
But before the final deadline on Wednesday, they have to overcome many obstacles.
On Saturday, the finance ministers of the 27-country European Union decided to force the bloc's biggest banks to substantially increase their capital buffers -- an important move to ensure that they are strong enough to withstand the panic that a steep cut to Greece's debt could trigger on financial markets.
A European official said the new capital rules would force banks to raise just over euro100 billion ($140 billion), but finance ministers did not provide details on their decision. The official was speaking on condition of anonymity because it had been agreed to let leaders unveil the deal at their first summit Sunday.
"We have made real progress and have come to important decisions on strengthening European banks," George Osborne, the U.K.'s chancellor of the exchequer, said as he left Saturday's meeting.
The deal on banks was likely to be the only major breakthrough ready to announce on Sunday, leaving many important decisions and negotiations to be completed by Wednesday night.
On Friday, the first day of the marathon talks, the finance ministers of the 17 countries that use the euro -- and which have found themselves at the center of the crisis because of the currency they share -- agreed to demand Greece's private creditors take big losses on their bondholdings.
But they still have get the banks to come along and convince them that the cuts are the best way to ensure that Athens can eventually repay its remaining debts.
The picture in Greece, whose troubles kicked off the crisis almost two years ago, is bleaker than ever. A new report from Athens' international debt inspectors -- the European Commission, the European Central Bank and the International Monetary Fund -- proved that a preliminary deal for a second package of rescue loans reached in July is already obsolete.
That plan would have seen banks and other private investors take losses of some 21 percent on their Greek bond holdings, while the eurozone and the IMF were to provide an extra euro109 billion ($150 billion) in bailout loans.
But the report showed that in the past three months Greece's economic situation has deteriorated so dramatically that for the bank deal to remain in place, the official sector would have to provide some euro252 billion ($347 billion) in loans. Alternatively, to keep official loans at euro109 billion ($150 billion), banks would have to accept cuts of about 60 percent to the value of their Greek bonds.
"I believe we are now arriving at a more realistic view of the situation in Greece," said German Chancellor Angela Merkel, the country that has long been advocating a more radical solution to Athens' problems.
But Merkel and her eurozone counterpart were on for tough negotiations with the banks.
Charles Dallara, who has been representing private investors in the talks with the eurozone, said Saturday that negotiations that carried on sporadically throughout Saturday were making only slow progress.
"We're nowhere near a deal," he told The Associated Press in an interview.
Dallara, the managing director of the Institute of International Finance -- the world's biggest bank lobbying group -- said current plans to cut Greece's debt would leave the country as "a ward of Europe" for years.
He declined to say how much in losses banks would be willing to accept, saying only "we would be open to an approach that involves additional efforts from everyone."
The eurozone has been working hard to reach a voluntary agreement with banks, rather than forcing losses onto the lenders, because that could avoid triggering billions of euros on payout for bond insurance and could destabilize markets even further.
However, in recent weeks some officials have no longer insisted that the deal remain voluntary.
Agreement on arguably the most important measure in the crisis plan remained even more elusive Saturday: boosting the firepower of the currency union's euro440 billion ($600 billion) bailout.
Increasing the effectiveness of the fund -- called the European Financial Stability Facility -- is meant to help prevent larger economies like Italy and Spain from being dragged into the crisis. At the same time, the EFSF may be asked to help governments shore up their banks if they can't raise the necessary funds on financial markets.
But Germany and France still disagree over how to give the EFSF more firepower. France wants the fund to be allowed to tap the ECB's massive cash reserves -- an option that Germany rejects. Weaker economies, meanwhile, are wary of signing up to the other two parts of the grand plan -- bigger bank capital and cuts to Greece's debt -- without assurance that sufficient buffers are in place. |
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HenryTo
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| Posted: Tue Jan 10, 2012 12:42 am Post subject: |
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Bridgewater reminds us that the European banking crisis isn't over.
| Quote: | | As you know, it appears to us that the seizing up of European financials is threatening the piping of the global financial system, and the associated squeezes are popping up in the emerging world. While the emerging world is a net capital exporter, in general the private sector in most emerging countries has experienced a very significant credit boom that has been financed in large part through the global financial system. Since the last crisis, stronger banks in the developed world with access to easy liquidity but not many creditworthy borrowers at home have sought out lending opportunities in the emerging world. These flows, at 5% of emerging world GDP, have been the dominant source of new credit creation in the emerging world outside of China (where the domestic banking system is more significant and capital inflows more restricted). This push of capital enhanced the emerging world’s boom, but now, problems in global financials, particularly in Europe, have clogged this pipe. About 75% of the cross-border financing of emerging world credit comes through Europe (Euroland, UK, Switzerland), and this flow is at risk as European financials rapidly deleverage. |
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rffrydr
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| Posted: Mon Jan 09, 2012 10:03 am Post subject: |
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All that "communality" Wall St. tirelessly bemoans has it's advantages: hello stealth repo market:
| Quote: | Blue-chip names like Johnson & Johnson, Pfizer and Peugeot are among firms bailing out Europe's ailing banks in a reversal of the established roles of clients and lenders.
Europe's banks are struggling to secure the cash to fund their day-to-day business and have largely stopped lending to each other for fear Europe's sovereign debt crisis could land any of their peers in trouble.
As a result a group of well-known, cash-rich companies with solid cash flows has stepped in the repo market, which provides a form of lending so far almost exclusively in use between banks, and between banks and central banks.
One market participant said in one key area of lending companies now accounted for 25 percent of these deals.
...[banks] are also paying insurers and pension funds to take their illiquid bonds in exchange for better quality ones, in a desperate bid to secure much-needed cash from the ECB, which only provides cash against collateral. |
--Reuters
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HenryTo
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HenryTo
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rffrydr
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| Posted: Thu Dec 08, 2011 9:37 am Post subject: |
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The RBS outlook via alpahville:
| Quote: | The belated shift by European banks to prioritise balance sheets over RoTCE
optimisation makes for a slow multi-year organic equity rebuild as most try to
avoid equity issuance. Beyond near-term sentiment from moves in stressed
sovereign spreads, this dynamic merits persistently low valuation multiples.
NH
Balance sheet structures take priority over earnings optimisation
At the current pace of earnings generation, it will take the European banks until 2016 to reach
the x16 funded asset leverage consistent with an 11-12% fully loaded BIS3 CET1 ratio
benchmark. This would lower our 2013F RoTCE from 11% to 9%. We also anticipate further
major shifts in both the mix and cost of funding. Banks will dynamically manage the trade-off
between term wholesale (secured and unsecured), deposits and asset reduction, depending
on ever-more lenient central bank liquidity to facilitate an orderly multi-year adjustment. This is
prudent for financial stability, but in our view creates uncertainty re banks’ true sustainable size
and profit profile. Market funding spreads imply a further 20% risk to our base case, to a 7%
RoTCE. And to date we observe limited loan re-pricing to compensate. Worse, euro zone deposit
growth has stagnated and is now shrinking in several countries, notably Greece and Spain.
NH
Asset quality likely to deteriorate as Europe heads into recession
Most lead indicators point to Europe heading into recession, and GDP forecasts continue to
be cut. The early 1990s’ severe real economy recession generated an average annual 150bp
P&L impairment/loan charge for three years. A repeat in 2012/13 would take about 50% off
our forecasts. We are hopeful that the combination of restrained loan growth combined with
the heavy losses endured since 2008 and very low policy rates should avoid such a severe
out-turn. But we do anticipate a trend deterioration in asset quality through 2012.
NH
Headline valuation multiples are justifiably low
Our base-case 11% 2013F RoTCE combined with limited cash distribution, widespread
equity issuance risk and a 0.7x p/TCE multiple implies a value trap. We see the risk/reward
for European economic growth and financial system stability as well as banks’ earnings and
profitability delivery, and so TSR is all skewed to the downside. Our conviction
recommendations reflect this negative view: long SEB, St Chartered and UBS vs short Credit
Agricole, Santander and Danske. |
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rffrydr
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| Posted: Thu Dec 08, 2011 9:08 am Post subject: |
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...of course they are/will...the usual suspects:
http://www.ft.com/intl/cms/s/0/9feb9fa2-2106-11e1-8a43-00144feabdc0.html#axzz1frmqT06t
It is still all about revenues now? Well this is how they get those.
[edit] more detail:
http://ftalphaville.ft.com/blog/2011/12/08/787551/sweet-deals-in-european-bank-deleveraging/
Goldman's immediate timeline (note: more than half of the e106B will be met by retained earnings (a successful summit, all?):
| Quote: | The EBA has announced that it will publish the final aggregate recapitalization amount today (December  .
NH
Separately, the individual banks are expected to publish their results shortly after. In addition, we believe it is likely that: (1) most banks will publish updated EEA bond exposures, (2) the EBA will release the new,
standardized CoCo term sheet, and (3) details of the funding guarantees will be disclosed. We also expect individual banks will (4) lay out a more detailed plan to reach the residual capital shortfalls by 1H12 (EBA deadline).
NH
EBA’s initial capital estimate €106 bn
The EBA had previously (end-October) released a preliminary capital shortfall estimate of €106 bn. This represented the aggregate amount of capital needed for all 70 banks in the sample to achieve a 9% EBA CT1 hurdle, including a mtm of the European sovereign bond book. This is a “gross” capital shortfall as it does not capital estimate is somewhat higher.
NH
Five avenues for recapitalization:
We expect the final capital shortfall, identified by the EBA, to be met through:
1. Retained profits. Banks should generate about €54 bn of profits through to 1H12. Amongst banks, the
skew is towards the “core”.
2. Deleveraging. European loan reduction is discouraged. However, we fully expect banks to include
subsidiary disposals / loan sales into their recap plans, especially those outside the EU.
3. Rights issues. Banks have announced €12 bn of cap hikes post the initial EBA release (October). We do
not expect further announcements here.
4. Debt buy-back. EBA explicitly encouraged debt buy-backs and a number have been announced.
5. RWA optimization, which we see as the most controversial approach.
European banks: |
--Alphaville
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Last edited by rffrydr on Thu Dec 08, 2011 8:19 pm; edited 1 time in total |
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HenryTo
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| Posted: Wed Dec 07, 2011 11:18 pm Post subject: |
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Bridgewater on European bank deleveraging:
| Quote: | Foreign Bank Deleveraging, Particularly in Europe, is Breaking the Dollar Financing Pipeline
The $9tln pipeline of dollar lending built by banks outside the US has made these banks important suppliers of credit to both the US and increasingly to the emerging markets. These pipes are at risk of breaking down as wholesale funding markets have become unreliable and global regulators are requiring these banks to increase the stability of their funding and improve their capital ratios. While the Fed injecting liquidity will prevent a rapid deleveraging, these banks are unlikely to maintain their assets using public financing. This is most acute for European banks which face the stiffest deleveraging pressures. Eurozone banks have nearly $4tln in US dollar assets with over 90% of those assets funded with wholesale money (vs. 30% of their domestic euro books). And because more than two-thirds of these dollar assets are to entities outside of Europe and outside of their core businesses, reducing these US dollar assets is more palatable to both the banks and their domestic regulators. With most of the world’s financial system deleveraging, we don’t see many financial institutions on the other side of these trades, either picking up the loans or buying the assets. So it looks to us like it will be slow going and the price/interest rate impacts are likely to be significant. |
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rffrydr
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HenryTo
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| Posted: Thu Dec 01, 2011 5:33 pm Post subject: |
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Bridgewater's latest on European banks and debt crisis.
| Quote: | Europe's Other Central Banks
We are watching them closely.
As you know, based on how we add up the numbers, we believe that the European banking crisis dwarfs the European sovereign debt crisis (which is enormous) so that, if the sovereigns were in great shape, they would still have ruinous liabilities from trying to save "their" banks. So, both bank and sovereign deleveragings are underway. In this great deleveraging, as in all great deleveragings, there is a squabble over who will pay for what. Of course, in this case, the squabble is especially challenging because there are 17 countries (with opposing factions in each) with radically different vested interests pretending to act in their "common interest". In the old days -- when each country was a country, had its own central bank that printed its own currency and had its own fiscal organizations -- it was pretty easy to anticipate what their monetary and fiscal policies would be in light of their circumstances. However, now that the policy tools and the hands on them are not so neatly aligned with the vested interests, the policy moves are not as obvious. |
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rffrydr
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| Posted: Tue Nov 29, 2011 7:45 am Post subject: |
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I dunno, I read this as good news. The Barclay's figure of course is greatly inflated as is almost all anglo-saxon coverage of The Continent has become. And where does that fear money go that won't roll?....deposits! My fear is the increasingly coco-centric capital structure. These rank even in bankruptcy--and they laughed at the idea of going back to Pottersville!
| Quote: | European banksJust as a boa constrictor bites then squeezes the life out of its prey, so bond investors are the latest group to have eurozone banks in their grip. The combination of deteriorating earnings and regulatory outlooks for banks and the eurozone’s sovereign debt crisis has restricted bond funding. European banks have raised slightly less than two-thirds of the more than $650bn needed to refinance bonds maturing this year, according to Dealogic. True, the roughly $240bn funding gap narrows by almost $100bn if covered bonds are included alongside senior unsecured debt. On that basis, nearly 85 per cent of total maturing debt of $890bn has been raised. Even so, a $140bn-plus funding shortfall remains a life-sapping constraint for banks.
But long-term liquidity is only one problem. The confluence of tougher re-regulation globally with a looming economic slowdown already squeezes banks’ equity and assets. Take the European Banking Authority: it has given thinly capitalised lenders until June to raise equity of €105bn ($140bn, coincidentally) to meet its 9 per cent minimum core tier one capital ratio, 200 basis points above the global Basel III target. Sure, it set out to break the eurozone’s bank-sovereign loop, but its rules are dangerously pro-cyclical. Not all banks can tap equity markets. Most banks are rushing to meet Basel III.
Barclays Capital puts potential asset shrinkage at up to €3,000bn, or 10 per cent of eurozone bank assets. That will limit credit, exacerbate recessionary pressures and cut banks’ returns, slowing organic capital formation. Nor, with wholesale funding costs rising, can banks rely on cheap retail deposits. Spanish banks have to pay retail clients 4 per cent a year just to win deposits. Cue more constriction and bank consolidation. Or is the European Central Bank ready to step in, Mario Draghi?
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HenryTo
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HenryTo
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HenryTo
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HenryTo
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| Posted: Fri Nov 18, 2011 1:16 am Post subject: |
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Bridgewater on the "great deleveraging" by European Banks:
| Quote: | The Asset Avalanche from Europe
Watching the European banks announce their deleveraging plans one by one feels like watching an avalanche in slow motion. Each bank over the last few months has been laying out its individual plan to cut assets due to funding strains and to minimize capital needs to comply with increased banking regulation. As an example, UBS announced Thursday its $130bn deleveraging plan, most of which is planned for the next 12 months. UBS's cut is focused on their investment bank, the most international part of the bank, which will significantly reduce its commitment of capital outside of Switzerland. Looking at each plan individually, the plans might make sense (i.e., each bank in a vacuum has good reason to cut its assets), but when looked at in aggregate, it seems clear that the plans cannot work without creating devastation. We have added up all the plans and the implied deleveraging cannot work, because the magnitude of the assets for sale are inconceivably large versus the potential private sector buyers, and even the plans to just let short-term lending roll off would have devastating consequences for the economy. When the US banking system faced similar circumstances in 2008, only the nearly unlimited response by the Fed and the Treasury ended the death spiral. As you know, it seems to us either something of that magnitude will be coordinated in Europe, or the deleveraging will enter an uncontrolled phase. |
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rffrydr
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| Posted: Fri Oct 28, 2011 7:21 am Post subject: |
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MS on how we get to e106B:
| Quote: | Bank capital: Our analysis suggests the large listed
banks deficit is €55bn at June 2011, and with retained
earnings and deleveraging could be as low as €11bn by
June 2012 (o/w €6bn in Italy alone). Whilst pressure on
divis/bonuses may see some leading banks raise capital
in the next 3 months, we think quite a few banks will
seek to use the optionality granted by an 8-month
window, including liability management actions. We
note in Spain that the €26bn could result in less than
€5bn of fresh capital. Whilst not a surprise to us (see
Euro-TARP – 10 things you need to know, October 17,
2011), we think it will mean a smaller additional buffer
than we recommended. |
CoCo's and Preferred will stay on. As well as, if we are going to "mark-to-market", tax loss credits.
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