Sat, 27th May 2017

Anirudh Sethi Report


Archives of “bailout” Tag

European Banks Risk Facing a ‘Collapse Worse Than the 2008 Financial Crisis’

In a recent report, experts of the Amsterdam-based Transnational Institute think-tank revealed that in 2008-2015, European Union member states spent €747 billion ($792 billion) on different bailout packages for banks.

Moreover, as for October 2016, some €213 billion ($226 billion) of taxpayers’ money — “equivalent to the GDP of Finland and Luxembourg” — was lost as a result of such rescue packages.

The authors of the reports also pointed out that the Big Four audit companies (EY, Deloitte, KPMG and PWC) engaged in designing the most important bailout packages were responsible for losses.

“In cases where the bailout consultants gave poor or inaccurate advice on the allocation of state aid there have been few consequences, even when state losses actually increased as a result. Bailout consultants have often been rewarded with new contracts despite their repeated failures,” the report read.

“The firms responsible for assuring investors and regulators that EU banks were stable, the Big Four audit firms, maintain their market dominance despite grave failures in their assessment of the EU banking sector’s lending risks,” it added. Read More 

Italian Government Prepares To Nationalize Monte Paschi

The wait is almost over.

After two previous taxpayer funded bailouts, and nearly five months of foreplay since the third largest Italian bank failed the latest European stress test at the end of July, in which the Italian government in September vow that “bailout for Italian banks has been ‘absolutely’ ruled out”, a third bailout, as we previewed earlier today, is now imminent.

According to Reuters, which cites two sources, Italy is preparing to take a €2 billion controlling stake in Monte Paschi as the bank’s hopes of a private funding rescue have faded after a fruitless five month search to secure an anchor investor, following Prime Minister Matteo Renzi’s decision to quit.

The government, which is already the ailing bank’s single largest shareholder with a four percent share, is planning do a debt-for-equity swap, and buy junior bonds held by ordinary Italians to take the stake up to 40%, the sources said. The bonds would then be equitized, converting the government’s bond stake into pure equity ownership, a troubling approach as it would effectively wipe out the existing equity tranche and position the bank for a potential bankruptcy fight in court where the government faces off with the equity committee.

This transaction would make the government by far the biggest shareholder, meaning the Treasury would be able to control Italy’s third biggest bank and its shareholder meetings, or in other words, the bank would be nationalized.

The sources said a government decree authorizing the deal, which would see the state buy the subordinated bonds from retail investors and convert them into shares, could be rushed through as early as this weekend. Italy’s treasury would buy the bonds held by around 40,000 retail investors at face value, the sources said.

German Media Says Merkel Can Not Afford To Bail Out Deutsche Bank

Having kept mostly silent during the past week when Deutsche Bank stock was crashing, its default risk soaring, and only a spurious rumor by French AFP, based on a Twitter report, prevented the bank’s stock from going into a three day weekend at all time lows , on Saturday the German press woke up to the ongoing local banking crisis, reiterating what stoked the crisis in the first place, namely Angela Merkel’s statement last weekend that it won’t bail out Deutsche Bank.

Repeating not only what Merkel herself said last week – a statement which first prompted this week’s plunge in DB stock – but what we have said all along, namely that a bailout of Deutsche Bank would be political suicide for the Chancellor due to pressure from AfD, and may lead to the collapse of Europe, where other nations, namely Italy, have been pushing for a similar bailout of their own banking systems only to be met with stern denials by German, Reuters reports that according to much of the German media, Angela Merkel cannot afford to bail out Deutsche Bank given the hard line Berlin has taken against state aid in other European nations and the risk of a political backlash at home. 

Last week’s events, which have prompted numerous flashbacks to that certain historic week in September 2008 when Lehman failed after counterparties yanked cash from the doomed bank, culminated when the German government denied a newspaper report on Wednesday that it was working on a rescue plan for the Germany lender, unleashing a plunge in DB shares, which was accelerated after a Bloomberg report that hedge fund counterparties to DB’s prime brokerage had quietly withdrawn cash from the bank.

Only a so-far unconfirmed and very improbable report on Friday morning that the DOJ is willing to cut the $14 billion penalty to DB by more than half, prevented the stock from plunging further into the Friday close. 

And while we wait to find what the real story about the DOJ’s settlement decision is, Germany’s press is already making it clear – once again – that a Deutsche Bank bailout is out of the picture.

As Reuters adds, Germany, which has insisted Italy and others accept tough conditions in tackling their problem lenders, can ill afford to be seen to go soft on its flagship bank, the Frankfurter Allgemeine wrote. “Of course Chancellor Merkel doesn’t want to give Deutsche Bank any state aid,” it wrote in a front-page editorial. “She cannot afford it from the point of view of foreign policy because Berlin is taking a hard line in the Italian bank rescue.”

Gundlach: “The Market Will Keep Pushing Deutsche Bank Lower Until It Is Bailed Out”

With stunned investors reliving memories of the 2008 crisis as Deutsche Bank, a bank that is half the size of its host, Germany, seemingly on the precipice, and with Angela Merkel vowing as recently as this weekend not to bailout the bank, the market felt paralyzed: should it BTFD as it always has every time in the past 7 years, or should it wait for more clarity from the bailouters-in-chief before allocating capital to another riskless transaction, which may well be the next Lehman brothers.

“QE For Metals” – China’s Desperate Commodity Sector Demands A State Bailout

The one-word reason for this condition: China, which as documented extensively in the past, has clammed down on its unprecedented credit creation now that its debt/GDP is well over 300% and as a result conventional industries are dying a fast and violent death. In fact, months ago we, jokingly, suggested that what China should do, now that it has scared sellers and shorters to death, is to launch QE where it matters – the commodity space.

That joke has become a reality according to Reuters, which reports that China’s aluminum and nickel producers have asked Beijing to buy up surplus metal, sources said, the first coordinated effort since 2009 to revive prices suffering their worst rout since the global financial crisis.

The state-controlled metals industry body, China Nonferrous Metals Industry Association, proposed on Monday that the government scoop up aluminum, nickel and minor metals including cobalt and indium, an official at the association and two industry sources with direct knowledge of the matter said. The request was made to the state planner, the National Development and Reform Commission (NDRC).

One Reuters source familiar with the producers’ request said the China Nonferrous Metals Industry Association had suggested that the state buys 900,000 tonnes of aluminum, 30,000 tonnes of refined nickel, 40 tonnes of indium, and 400,000 tonnes of zinc.

Russia’s Biggest Banking Crashes of the Last 2 Years

The license of mid-sized Russian lender Admiralteisky Bank was revoked by the Central Bank on Friday, a day after security service raids and scenes of chaos outside one of its branches in Moscow, when riot police officers were called to stop angry depositors from attempting to break down a door.

Admiralteisky Bank was closed down because it did not have enough reserves, had processed large suspicious payments, did not observe anti-money laundering rules and this month “practically stopped serving its clients,” the regulator said in a statement.

When officials from the Central Bank searched the vaults of the lender they even found metal bars painted gold, industry website Banki.ru reported Friday, citing unidentified sources.

While dramatic, the implosion of Admiralteisky Bank — the country’s 289th biggest bank according to Banki.ru — follows a series of similar banking failures as the Central Bank continues a drive to clean up the banking sector and the country’s economic crisis squeezes the balance sheets of financial institutions.

The Central Bank has revoked the licenses of over 140 banks since its current head, Elvira Nabiullina, was appointed in 2013, and has spent billions of dollars on bailouts. Few of the owners or senior managers of the banks in question have faced charges in court, while many managed to flee abroad.

The Moscow Times has compiled five of the most spectacular Russian banking failures from the last two years, looking at what happened, whose fault it was and how big a bailout was required.

Greek elections may delay aid, S&P warns

Snap elections in Athens may delay the next disbursement of aid from European creditors, analysts with Standard & Poor’s warned on Friday.

The New York-based rating agency, which affirmed its ‘CCC+’ rating and ‘stable’ outlook, said that elections due in less than two weeks could setback the release of the next tranche of aid under its European bailout package.

Analysts with S&P said that the implementation of reforms passed before Prime Minister Alexis Tsipras called for early elections would not begin until a new Greek government had formed.

Greece swallowed a number of austerity measures to win the bailout programme. In August, the European Stability Mechanism, the EU’s rescue fund, disbursed €13bn to Athens from its new €86bn bailout package, which will cover its financial needs through October

Analysts with S&P added:

Although the Greek economy remains fragile and the September 20 election outcome uncertain, we think the risk of Greece leaving the eurozone has receded to less than a one-in-three likelihood.

The rating agency expects the Greek economy will contract 3 per cent this year, ranking it among the worst-performing of the 130 sovereigns that S&P rates.

Greek cash controls could remain in place for months

So say Greek officials talking to Reuters

Despite a loosening of restrictions on foreign transfers by businesses last Friday the cash problems at the banks are unlikely to be resolved any time soon

The banks are in deep freeze but the economy is getting weaker,” said one official, pointing to a steady rise in loans that are not being repaid.

Delays to the next round of bailout talks aren’t going to help either as the longer they take the more critical the banks’ condition becomes as a €420 weekly limit on cash withdrawals plays out on the economy and borrowers’ ability to repay loans

 Greek officials, alarmed by a downward spiral in the economy, want an urgent release of funds for their banks.

Four big banks dominate Greece. Of those, National Bank of Greece, Eurobank and Piraeus fell short in an ECB health check last year, when their restructuring plans were not taken into account. The situation is now dramatically worse.

Former Greek finance minister Yanis Varoufakis says that Greek reforms are going to fail

Former Greek finance minister Yanis Varoufakis has said that the economic reforms Greece has signed up to are “going to fail” ahead of talks on a third bailout for the cash-strapped country.

He told the BBC that the medicine administered to the Greek economy by its so-called “troika” of creditors – the European Union, the European Central Bank and the IMF – will “go down in history as the greatest disaster of macroeconomic management ever”.

“This programme is going to fail whoever undertakes its implementation,” he said. 

Varoufakis was dubbed “the rock star finance minister’ by the media as took the world by storm during the Greek debt negotiations. He’s been pictured wearing a leather jacket to meetings with important officials and he rides a motor bike.

However he resigned from his role despite a “no” vote in the Greek referendum saying that Eurozone officials would prefer his “absence from its meetings”.

Ex-IMF Chief: Germany Should Leave The Euro, Not Greece

In her euro-hegemonic role Germany failed to properly handle the Greek Crisis. What economics have been whispering among themselves after the scandalous Brussels Agreement of July 13th is now on the public discussion. One of IMF’s former European bailouts official, Ashoka Mody made it very clear in his article on Bloomberg on Friday morning: It’s Germany not Greece that has to leave the eurozone.

Germany not Greece should Exit the Euro 


“The latest round of wrangling between Greece and its European creditors has demonstrated yet again that countries with such disparate economies should never have entered a currency union. It would be better for all involved, though, if Germany rather than Greece were the first to exit.


After months of grueling negotiations, recriminations and reversals, it’s hard to see any winners. The deal Greece reached with its creditors — if it lasts – pursues the same economic strategy that has failed repeatedly to heal the country. Greeks will get more of the brutal belt-tightening that they voted against. The creditors will probably see even less of their money than they would with a package of reduced austerity and immediate debt relief.”

Now the idea of a member country exiting the eurozone is not a taboo anymore. But would Greece leave the euro, it will be “possible followed by Portugal and Italy in the subsequent years, the countries’ new currencies would fall sharply in value, leaving them unable to pay debts in euros, triggering cascading defaultsAlthough the currency depreciation would eventually make them more competitive, the economic pain would be prolonged and would inevitably extend beyond their borders.