Thursday, September 9, 2010

More New Things On Spain

National Bank of Greece plans €2.8bn fundraising

By Anousha Sakoui in London and Kerin Hope in Athens

Published: September 8 2010 09:44 | Last updated: September 8 2010 10:31

National Bank of Greece, the country’s largest bank, is planning to raise €2.8bn ($3.5bn) in new capital, in a move designed to bolster confidence in the Greek banking sector, according to bank officials.

News of the capital raising sent the bank’s shares off 9 per cent in early Wednesday trading, with other Greek banks also suffering – Alpha Bank’s shares were down 4 per cent.

Vassilios Rapanos, NBG chairman, told the Financial Times on Tuesday that the bank would raise €630m in a rights issue and another €1.18bn through a convertible bond issue with a maturity of seven days.

The issue comes amid an eight-month liquidity squeeze on Greek banks, which have been excluded from the wholesale banking market during the country’s sovereign debt crisis.

“This fundraising will give the bank one of the strongest capital adequacy ratios in Europe... it sends a message to shareholders and depositors alike that we can face the future with confidence,” Mr Rapanos said.

The plan is subject to board approval, but could be launched as early as next week. The share capital increase had been previously authorised and was fully underwritten.

On completion, NBG’s capital adequacy ratio would exceed 14 per cent, Mr Rapanos said. NBG plans to raise another €1bn early next year through a public offering of about 20 per cent of Finansbank, its wholly owned Turkish subsidiary, on the Istanbul stock exchange – a plan that has still to be approved by Turkish regulatory authorities.

Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley and Greece’s state-controlled Postal Savings Bank are underwriting both issues.

The bank would use part of the funds to pay back a €358m capital injection from the Greek government made during the credit crunch. It could avoid drawing down funds from a €10bn bank stability fund set up by the European Union and International Monetary Fund as part of the €110bn bail-out package that enabled Greece to avert a sovereign default this year.

Spanish lenders hasten back to bonds

By Victor Mallet in Madrid

Published: September 6 2010 19:16 | Last updated: September 6 2010 19:16

Spanish banks that were squeezed out of wholesale finance markets in May have returned in force with a series of bond issues since late July and raised more than $4bn in the first five days of September alone, according to company announcements and figures from Dealogic, the data provider.

But both bank executives and analysts say that recent issuance has been confined to the big five listed commercial banks and to La Caixa, the big Barcelona-based savings bank, and that the interest rate spread paid by even strong Spanish financial institutions remains relatively high.

Shunned by investors during the eurozone sovereign debt crisis, Spanish financial institutions issued no covered bonds – a previously popular form of financing secured on mortgage portfolios – in either May or June. Total debt issuance by Spanish banks fell to a negligible $2.3bn in May and $3.8bn in June, Dealogic said.

But since July the Spanish banks and savings banks have again been able to sell covered bonds to international investors. Total debt issuance reached $15.8bn in July, fell back to $1.7bn in the normally quiet holiday month of August, and accelerated again to top $4.1bn so far this month, including $2.5bn of covered bonds.

To add to the total, Santander, the biggest bank by market capitalisation in the eurozone, said it sold on Monday €1bn ($1.3bn) of three-year unsecured bonds at 145 basis points over the benchmark swap rate, amid brisk international demand

Other deals this month include €1bn of three-year covered bonds issued by La Caixa and another €1bn in two-year, mortgage-backed securities – double the initial plan – by Banco Sabadell.

Spanish bankers say they are relieved that wholesale finance markets – previously closed to all but the strongest banks such as Santander, and even then at prohibitively high rates of interest – are once again open.

“It’s a start,” said Iñigo Vega, a banks analyst at Iberian Equities in Madrid. “They are in the market again, which is a good sign. But it’s only six groups, which leaves 50 per cent of the system still out of the market.”

Big Spanish lenders such as Santander, BBVA and La Caixa are not only hogging the debt markets. They are also competing vigorously for domestic retail banking deposits by offering rates of interest to savers that their weaker rivals cannot afford.

In addition to raising medium-term debt, Spanish banks have also found it easier in recent weeks to access short-term liquidity, for example through “repo” transactions using Spanish government debt as security.

In this market too, however, the strongest banks are dominant, leaving weaker cajas, the unlisted savings banks, heavily dependent on the emergency liquidity provided by the European Central Bank.

Fears rise as EU nations aim to raise borrowing

By David Oakley, Capital Markets Correspondent

Published: September 5 2010 12:37 | Last updated: September 5 2010 20:16

The eurozone debt crisis is about to enter a critical phase as governments prepare to step up borrowing in the capital markets to fund their faltering economies.

Some strategists are warning that some of the weaker economies could fail to raise the amount of money they need as eurozone governments attempt to issue double the amount of debt this month compared with August.

Eurozone governments will try to raise €80bn ($103bn) in September compared with new bond issuance of €43bn in August. Spain is expected to attempt to borrow €7bn in September compared with €3.5bn in August, according to ING Financial Markets.

Spain, Portugal and Ireland , so-called peripheral eurozone economies, are considered most in danger of being shunned by investors as worries persist over the health of their banks and economies. Greece is no longer a concern because it has emergency loans to cover its funding for the next two years.

Padhraic Garvey, head of rates strategy for developed markets at ING Financial Markets, said: “We are heading into a critical period as the chances rise that a government may fail to raise the money it needs.

“Spain, Portugal and Ireland are the obvious ones to worry about. Are investors willing to stay long, or buy the debt of these countries? I’m still not seeing investors willing to buy into the periphery.”

Some strategists say the return of most investors from holidays this week could increase volatility in these markets because many have put decisions on their portfolios on hold during the summer.

With most investors back at their desks, some could start selling peripheral debt in the coming weeks, particularly as the outlook for the global economy has deteriorated. In spite of some better than expected data out of the US last week, worries about a double-dip recession have increased.

But other strategists insist governments will have little difficulty in funding themselves, even if they have to pay higher premiums or yields to attract investors. They say countries such as Portugal and Ireland have already raised most of the money they need this year.

Government bond yields of the peripheral countries, however, may come under further selling pressure.

Yield spreads against Germany, the eurozone’s benchmark economy, could also widen. On Tuesday, Ireland saw the extra premium it has to pay over Germany jump to a record 356 basis points.

A double-dip recession would hit the economies of Spain, Portugal and Ireland particularly hard, although even core countries, such as France and Germany, could struggle to attract investors, say strategists.

In Europe’s Debt Crisis, Lending Was Still Strong
Published: September 5, 2010

Even as Europe’s sovereign debt crisis intensified early this year, banks continued to load up on debt from Greece and other countries with the most acute fiscal problems, according to a report released on Sunday.

The report suggests that the European Central Bank inadvertently encouraged institutions to increase their risk as it tried to stabilize the banking system.

Banks increased the amount of credit they extended to governments and the private sector in Greece, Ireland, Portugal and Spain by 4.3 percent, or $109 billion, in the first quarter of 2010 compared with the previous quarter, the quarterly report from the Bank for International Settlements said. The additional credit brought banks’ total exposure to those countries to $2.6 trillion. The Bank for International Settlements, in Basel, Switzerland, serves as a clearinghouse for the world’s central banks.

European banks increased their holdings to the four countries more than banks from the United States or other places outside of Europe, possibly because banks in the euro zone could use debt from Greece and the other countries as collateral for low-interest loans from the European Central Bank, the report said.

The European Central Bank has been lending euro zone banks as much as they want at 1 percent interest, provided the banks could provide collateral like government bonds. The liquidity has helped weaker banks survive periods when they were unable to borrow from other banks or outside investors.

The fact that higher-risk European debt was less liquid, or harder to sell quickly, “was less of a concern for euro area banks than for other banks since the former could ‘liquefy’ this debt in their operations with the E.C.B.,” the Bank for International Settlements said.

The data suggest that the European Central Bank was effectively encouraging euro zone banks to buy debt from Greece and the other troubled countries. The policy supported Greece and Spain as they sold new bonds but also meant that euro zone banks were taking on more risk at a time when the central bank had been trying to stabilize the European financial system.

The central bank has been trying to dial down its support for euro zone banks, but last week extended the policy of unlimited lending to banks at least through mid-January, amid signs that some institutions are still unable to raise all the money they need.

The central bank has tightened its criteria for the collateral. The bank now imposes so-called haircuts of as much as 29 percent on government debt used as collateral, meaning that banks cannot borrow at the full face value of the bonds. That policy could reduce the incentive for banks to buy the riskier debt.

German and French banks continued to be the most heavily exposed to debt from the countries on the periphery of the euro zone. French exposure to Greece alone was $111.6 billion, though only $27 billion of that was government debt. The rest was credit to Greek businesses and individuals, derivatives contracts or other categories. German banks’ exposure to Greece totaled $51 billion, of which $23.1 billion was government debt.

American banks hold $41.2 billion in debt or other exposure to Greece, the report said. Only $5.4 billion of that sum was government debt.

German banks were particularly exposed to Ireland, with total exposure of $205.8 billion, exceeded only by British banks, with $222.4 billion. Almost all the German credit to Ireland was in the private sector, the report said.

The Bank for International Settlements did not give any information on individual institutions, but Germany’s high exposure to Ireland probably stems at least in part from Hypo Real Estate, a bank in Munich. Hypo Real Estate’s subsidiary in Dublin suffered liquidity problems in late 2008. The German government now owns the bank.

Beware the Greeks, though not just yet
Posted by Cardiff Garcia on Sep 03 15:37.

Here’s an interesting chart ripped from the CFR Geo-Graphics blog:

Notice anything strange?

The European Stabilization Mechanism was announced on May 11, the date represented by the blue bar in the middle of each time-to-maturity listed. For maturities of one and two years, the market’s expectation for a default (represented by Greek-German spreads) remains lower than before the ESM was announced. For a three-year maturity, it’s roughly the same as before.

But if you go any further along the timeline, the market is now pricing in more risk than before the ESM came into play.

Why has the market increased its confidence in Greek short-term debt but reduced it for the long-term?

Some of this might be explained by a simple preference for long-term bunds driven by other factors, but CFR offers a less sanguine explanation (emphasis ours):

Greece will happily borrow from the ESM to avoid having to close its primary deficit (that is, excluding interest payments) too rapidly. Yet if Greece is successful in eliminating its primary deficit, its temptation to default will actually grow, as it can wipe out huge amounts of accumulated debt without any longer needing the financial markets to fund current expenditures. If faced with the choice between paying Greek debts and letting Greece default, its northern neighbors may, once their banks are on more solid footing, find it more attractive simply to let Greece default. This is the story line that the markets are now pricing into government bond spreads.

Oh dear.

Bond yields fall below 6%

Irish bond yields hovered below 6 per cent as the Government announced it would split Anglo Irish Bank into two separate entities.

The interest rate or yield on Government 10-year bonds fell back after the Government said Anglo would be divided into a funding bank and an asset recovery unit, which would be wound down over time.

At close, the yield on Irish bonds was 5.991 per cent, down from an earlier high of 6.047 per cent.

Earlier, credit-default swaps on Ireland rose 21 basis points to 402.5, surpassing a previous closing high of 396 in February 2009, according to data provider CMA. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.

Shares in Irish banks were also hit this afternoon, with Bank of Ireland closing at 70 cent, down about 3 per cent, having been off almost 7 per cent earlier in the session. AIB closed at 75.5 cent, down less than one cent.

Irish Life and Permanent fell 3.66 per cent to close at €1.63.

Credit-default swaps on the nation's banks also soared, with contracts on Anglo Irish Bank climbing 58.5 basis points to 774.5, the highest level since March 2009. AIB jumped 29.5 basis points to 521.5 and Bank of Ireland increased 21 basis points to 409, CMA prices show.

A basis point on a credit-default swap contract protecting €10 million of debt from default for five years is equivalent to €1,000 a year.

Minister for Finance Brian Lenihan and Taoiseach Brian Cowen have insisted the cost of dealing with the problems in Irish banks are manageable because they are spreading the costs out over 15 years and the State has no immediate funding requirements.

But analysts said they need to be more specific.

"They will have to put clarity on the language and clarity on the numbers. This business of saying it's manageable is not going to wash with the markets," said Alan McQuaid, economist with Bloxham Stockbrokers in Dublin.

"The market is saying, 'You are trying to juggle too many balls, you're weighed down by Anglo and you are not going to be able to generate enough economic growth and implement fiscal austerity and meet budget targets by 2014, it's just impossible,' that's what the market is telling you."

A senior member of German chancellor Angela Merkel's party said today that Ireland, Portugal and Spain probably won't need support from the euro zone rescue fund.

The €440 billion European Financial Stability Facility, headed by former European Commission official Klaus Regling, was set up in May as the Greek debt crisis threatened to spill over to other euro states.

"I see - and Mr Regling stressed that as well in the past days - that the stabilisation fund is probably not going to be used," Leo Dautzenberg, parliamentary Finance Committee spokesman for Ms Merkel's Christian Democratic Union, said today in an interview.

In a speech in Riga, Ms Merkel said that debt-laden governments must stick to their deficit- cutting programs because Germany won't agree to have the euro fund turned into a permanent facility to provide aid.

"The crisis mechanisms now in place are temporary," she said in the Latvian capital. "Germany won't agree to an indefinite prolongation. Otherwise, people would say 'we've got such a nice rescue package in place that this can go on forever.'"

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