Spain Moves to Save Bank, not to Help the People

The Spanish government finds it logical to cut expenditures directed to help the ailing economy while spending $13 billion on Bankia.

AFP | MAY 8, 2012

Spain will swoop in with public money this week to clean up huge bad loans at the nation’s fourth-biggest listed bank, Bankia, the government said Monday.

As news emerged of the impending rescue of Bankia, created in 2010 from a merger of seven savings banks, its executive chairman Rodrigo Rato announced his resignation.

Shares in the bank, which has the industry’s largest exposure to the property market at 37.5 billion euros ($49 billion), closed down 3.26 percent at 2.375 euros on a day which saw Spain’s main share index rise 2.72 percent.

Spain’s banks are still struggling to emerge from a 2008 property bubble collapse, which eliminated millions of jobs and left the financial sector buried in risky assets.

Investors fear the unknown cost of rescuing the industry could derail efforts to stem a rapid rise in Spain’s sovereign debt and avert a bail-out.

“We are finalising a plan to clean up the bank,” said an economy ministry official, referring to Bankia, adding that the scheme would use public money and was likely to be announced by Friday.

The state was considering using contingent convertible bonds, he said. These bonds convert into equity in certain circumstances, for example if a bank’s core capital falls below a set ratio.

The leading daily El Pais estimated Bankia would need 5-10 billion euros ($6.5-13 billion) to repair its balance sheet. Business daily Expansion put the figure at 5-7 billion euros.

Those reports were “not far off track”, said the official, declining however to give any figure.

The bank’s chairman said in a statement he would leave its future in other hands.

“I have decided to pass the baton to a new manager to decide what is best for this entity,” said Rato, who was Spanish economy minister from 1996-2004 and managing director of the IMF until 2007.

Rato said he would propose the former chief executive of Spain’s second-largest bank BBVA, Jose Ignacio Goirigolzarri, as his replacement.

Prime Minister Mariano Rajoy’s conservative government, which swept to power in December, had previously refused to countenance the use of public money to rescue the banks.

Rajoy had already ordered Spanish banks to set aside 54 billion euros in provisions against property-related assets.

But the prime minister said Monday that he would use public money if necessary to avoid a systemic collapse.

“If it were necessary to prompt lending, to save the Spanish financial system, I would not decline to do as all the countries in the European Union have done and inject public money,” he told Onda Cero radio.

“But that would be a last resort.”

The premier said new legislation would be announced on Friday to help banks deal with their assets.

But the Spanish leader said he was “not in favour of a bad bank”, an entity that would regroup bad assets and shift their risk away from commercial banks to the government.

He insisted that if any more public money had to go into the banks, it would not compromise the government’s tough deficit targets.

“Public money will only be used in an extreme situation… this will not affect the public deficit,” he said.

Rajoy is under pressure from eurozone neighbours and financial markets to lower Spain’s deficit from 8.5 percent of gross domestic product last year to 5.3 percent this year and 3.0 percent in 2013.

The International Monetary Fund last month urged Spain to push further ahead with banking reforms.

Clearly targeting Bankia, the IMF said in a report: “To preserve financial stability, it is critical that these banks, especially the largest one, take swift and decisive measures to strengthen their balance sheets and improve management and governance practices.”

The Bank of Spain said the banks’ doubtful loans in February amounted to 143.8 billion euros ($188 billion), rising to 8.15 percent of total credits — the highest ratio since 1994.

New ‘scary’ predictions for the Eurozone to justify loss of Sovereignty

‘Deep Depression’  is the new term used in main stream media to justify another bank bailout and the surrender of political and economic sovereignty.

AFP
November 29, 2011

Europe is reeling from warnings it faces a “deep depression” if the eurozone collapses and that every EU nation’s credit rating could be hit without firm action to resolve the debt crisis.

An updated growth report from the OECD on Monday said the crisis was now just one step away from plunging advanced economies into an abyss of recession and could trigger waves of bankruptcies.

And Moody’s, one of the three main ratings agencies, warned that even solid economies such as Germany might have to have their credit status revised — a move which would force them to pay higher borrowing costs.

Italy meanwhile, under pressure from Germany and France who have warned Rome that it could wreck the eurozone if it fails to master its debt problem, launched a patriotic drive to encourage people to buy bonds.

And while Belgium managed to raise 2.0 billion euros ($2.66 billion) in a bond auction, it had to agree to investor demands for a 5.65 percent return for benchmark 10-year bonds compared to 4.37 percent less than a month ago.

Meanwhile in Washington, US President Barack Obama told top European officials they must act now, with decisive force, to fix the debt crisis which threatens to damage the fragile US recovery.

“This is of huge importance to our own economy,” Obama said after hosting EU representatives at the White House.

“The United States stands ready to do our part to help them resolve this issue.”

Despite the bad news, European stocks and the euro rebounded sharply on Monday after days of sustained heavy losses. Investors reacted positively to a report saying Italy was to get an International Monetary Fund bailout — later flatly denied.

The Organisation for Economic Cooperation and Development report forecast that the United States faced a period of slow growth, Japan’s economy would shrink 0.3 percent this year and developing nations would also see a slowdown.

But its starkest warning was reserved for the 17-nation eurozone, which it said was set for growth of 1.6 percent and next year just 0.2 percent.

The OECD said there was still time for decisive action by policymakers to avert a far worse outlook, urging the European Central Bank to buy up devalued government debt bonds in huge quantities.

But Germany has been holding out against that idea, arguing that the priority is for countries in trouble to reform their economies.

Polish Foreign Minister Radek Sikorski nevertheless on Monday called on Germany to do more, saying the eurozone’s collapse would result in an “apocalyptic” crisis.

The OECD spoke also broached the possibility of a eurozone break-up.

An exit by one or more countries “would most likely result in a deep depression in both the exiting and remaining euro area countries as well as in the world economy,” it said.

“The euro area crisis represents the key risk to the world economy at present,” it said. “A large negative event would… most likely send the OECD area as a whole into recession.”

Moody’s considered the same scenario, saying “the probability of multiple defaults… is no longer negligible” and that would “significantly increase” the likelihood of one or more members dumping the currency.

“Moody’s believes that any multiple-exit scenario — in other words, a fragmentation of the euro — would have negative repercussions for the credit standing of all euro area and EU sovereigns,” the ratings agency added.

“The continued rapid escalation of the euro area sovereign and banking credit crisis is threatening the credit standing of all European sovereigns.”

The European Union’s three biggest economies — Germany, France and Britain — have so far maintained their triple A credit rating.

But countries such as Italy, Spain, Greece, Ireland, Portugal and most recently Belgium have all suffered rating downgrades that have accelerated unsustainable rises in their borrowing costs over the past two years.

A report on the website of the French paper La Tribune, citing several sources, suggested Standard & Poor’s might downgrade France in the next few days. A spokesman for the ratings agency refused to comment.

IMF chief Christine Lagarde also dismissed a report in La Stampa that suggested the International Monetary Fund was preparing a bailout package for Italy worth up to 600 billion euros.

La Stampa said the IMF would guarantee rates of 4.0 percent or 5.0 percent on the loan — far better than the borrowing costs on commercial markets.

But Lagarde said Monday: “The IMF does not invest, the IMF lends. And it lends when it is requested by a country that needs assistance.

“At this point in time, we have not received any request from Italy, nor are we negotiating with either Italy or Spain.”

Italy’s 1.9-trillion euro public debt and low growth rate have spooked the markets in recent weeks.

But analysts said the markets were unconvinced by the denial.

Greece, Portugal and Ireland have all received bailouts but a rescue of Italy, the eurozone’s third-biggest economy, would be on a totally different scale.

Derivatives: The Real Reason Bernanke Funnels Trillions Into Wall Street

by Graham Summers

We’ve been over the numerous BS excuses that US Dollar destroyer extraordinaire Ben Bernanke has made for QE enough times that today I’d rather simply focus on the REAL reason he continues to funnel TRILLIONS of Dollars into the Wall Street Banks.

I’ve written this analysis before. But given the enormity of what it entails, it’s worth repeating. The following paragraphs are the REAL reason Bernanke does what he does no matter what any other media outlet, book, investment expert, or guru tell you.

Bernanke is printing money and funneling it into the Wall Street banks for one reason and one reason only. That reason is: DERIVATIVES.

According to the Office of the Comptroller of the Currency’s Quarterly Report on Bank Trading and Derivatives Activities for the Second Quarter 2010 (most recent), the notional value of derivatives held by U.S. commercial banks is around $223.4 TRILLION.

Five banks account for 95% of this. Can you guess which five?

gpc 11-10-3 top five derivative exposure

Looks a lot like a list of the banks that Ben Bernanke has focused on bailing out/ backstopping/ funneling cash since the Financial Crisis began, doesn’t it? When you consider the insane level of risk exposure here, you can see why the TRILLIONS he’s funneled into these institutions has failed to bring them even to pre-Lehman bankruptcy levels.

gpc 2-8-1

Ben Bernanke is a stooge and a fraud, but he is at least partially honest in his explanations of why he wants to keep printing money. The reason is to try to keep interest rates low. Granted, he’s failing miserably at this, but at least he understands the goal.

Of course, Bernanke tells the public and Congress that the reason we need low interest rates is to support housing prices. He doesn’t mention that $188 TRILLION of the $223 TRILLION in notional value of derivatives sitting on the Big Banks’ balance sheets is related to interest rates.

Yes, $188 TRILLION. That’s thirteen times the US’ entire GDP, and nearly four times WORLD GDP.

Now, of course, not ALL of this money is “at risk,” since the same derivatives can be traded/spread out dozens of ways by different banks as a means of dispersing risk.

However, given the amount of money at stake, if even 4% of this money is “at risk” and 10% of that 4% goes wrong, you’ve wiped out ALL of the equity at the top five banks.

Put another way, Bank of America (BAC), JP Morgan (JPM), Goldman (GS), and Citibank (C) would CEASE to exist.

If you think that I’m making this up or that Bernanke doesn’t know about this, consider that his predecessor, Alan Greenspan, knew as early as 1999 that the derivative market, if forced into the open and through a public clearing house, would “implode” the market. This is DOCUMENTED. And you better believe Greenspan told Bernanke this.

In this light, all of Bernanke’s monetary policies and efforts are focused on doing one thing and one thing only: trying to shore up the overleveraged, derivative-riddled balance sheets of the Too Big to Fails, or Too Bloated to Exist, as I like to call them.

The fact that the bank executives taking this money and using it to pay themselves and their employees record bonuses only confirms that these folks have NO interest in taking care of shareholders or their businesses. They’re just going to take the money and run for as long as this scheme works.

I don’t know when this will come unraveled. But it WILL. At some point the $600+ TRILLION behemoth that is the derivatives market will implode again. When it does, no amount of money printing will save the Too Bloated To Exist banks’ balance sheets.

At that point, it’s game over for Wall Street and the Fed.