Mon, 30th May 2016

Anirudh Sethi Report


Archives of “bailout” Tag

“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The license of mid-sized Russian lender Admiralteisky Bank was revoked by the Central Bank on Friday, a day after security service raids and scenes of chaos outside one of its branches in Moscow, when riot police officers were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.

Greece -Deal banishes haircut worries

The new recapitalization procedure for Greek banks will follow the model used successfully in 2012, with the separation and liquidation of unsustainable lenders and assets, thereby putting an end to households’ and enterprises’ fears of an across-the-board haircut on deposits.

Monday’s preliminary agreement for a third bailout provides for the investment of up to 25 billion euros in the second recapitalization of Greek banks in three years, while the government must immediately incorporate the European Union’s 2014 directive regarding the streamlining of banks in national legislation. The directive provides for 8 percent of the banks’ needs to be covered by the banks themselves: first by their shareholders, then by bondholders and if that is not enough, by those with deposits of over 100,000 euros.

Therefore, while the directive does introduce a bail-in process, deposits up to 100,000 euros per depositor per bank will be shielded from a haircut – i.e. the vast majority of households’ accounts.

Don’t Tell Merkel: Greek Banks Need An Additional €10-14 Billion Bailout

To be sure, Germany has dug its heels in on Greece over the two weeks since PM Alexis Tsipras decided to put creditors’ proposals to a popular vote.

Even before the referendum hardened Chancellor Angela Merkel’s position, German FinMin Wolfgang Schaeuble and a whole host of Berlin lawmakers were up in arms at what they viewed as excessive accommodation of an increasingly belligerent beggar state. Even Bundesbank chief Jens Weidmann spoke out, deploring the ECB’s permissive attitude towards Greek banks and accusing Mario Draghi of monetary financing. 

Regardless of whether Greece comes away with a third bailout after Saturday’s Eurogroup meeting, no one can say Germany didn’t drive a hard bargain and indeed, Berlin has stood firm in the face of IMF calls for Greek debt writedowns even as Christine Lagarde’s haircut demands were bolstered this week by the US Treasury itself.

Germany’s position was summed up nicely on Friday by Hans Michelbach, a German lawmaker from Chancellor Angela Merkel’s Christian Social Union Bavarian sister party who told Bloomberg that “there must be no consent to a ponzi scheme, where old debts are settled only through new debt and the Eurogroup faces the same problem of Greece’s debt sustainability again in 2018.” “I’m not sure that the creditors won’t be fooled again because so far all implementations have been questioned again repeatedly,” he added.

We’re sorry to break it to Mr. Michelbach, Frau Merkel, and the German taxpayer, but that €53 billion Greece is asking for will be just the start of things and we don’t mean in the sense that Athens will one day in the not-so-distant future be back in Brussels looking for a fourth bailout (which they probably will), we mean in the sense that Greece’s beleaguered banking sector is insolvent and will need to be recapitalized one way or another with some (or all) of the funds coming directly out of the pockets of the very same EU taxpayers that are now set to fund the third Greek sovereign bailout. As Reuters reports, the recap could well run into the tens of billions of euros: 

Greek banks considering bail-in “haircut” of at least 30% on deposits above €8,000- FT

Greek banks are preparing contingency plans for a possible “bail-in” of depositors amid fears the country is heading for financial collapse, bankers and businesspeople with knowledge of the measures said on Friday.

The plans, which call for a “haircut” of at least 30 per cent on deposits above €8,000, sketch out an increasingly likely scenario for at least one bank, the sources said.

A Greek bail-in could resemble the rescue plan agreed by Cyprus in 2013, when customers’ funds were seized to shore up the banks, with a haircut imposed on uninsured deposits over €100,000.

It would be implemented as part of a recapitalisation of Greek banks that would be agreed with the country’s creditors — the European Commission, International Monetary Fund and European Central Bank.

“It [the haircut] would take place in the context of an overall restructuring of the bank sector once Greece is back in a bailout programme,” said one person following the issue. “This is not something that is going to happen immediately.”

BREAKING NEWS-Tsipras prepared to accept bailout conditions – leaked letter

Alexis Tsipras will accept all his bailout creditors’ conditions that were on the table this weekend with only a handful of minor changes, according to a letter the Greek prime minister sent late Tuesday night and obtained by the Financial Times.

The two-page letter, sent to the heads of the European Commission, International Monetary Fund and European Central Bank, elaborates on Tuesday’s surprise request for an extension of Greece’s now-expired bailout and for a new, third €29.1bn rescue

Although the bailout’s expiry at midnight Tuesday night means the extension is no longer on the table, Mr Tsipras’ new letter could serve as the basis of a new bailout in the coming days.

Mr Tsipras’ letter says Athens will accept all the reforms of his country’s value-added tax system with one change: a special 30 per cent discount for Greek islands, many of which are in remote and difficult-to-supply regions, be maintained.

On the contentious issue of pension reform, Mr Tsipras requests that changes to move the retirement age to 67 by 2022 begin in October, rather than immediately. He also requests that a special “solidarity grant” awarded to poorer pensioners, which he agrees to phase out by December 2019, be phased out more slowly than creditors request.

“The Hellenic Republic is prepared to accept this staff-level agreement subject to the following amendments, additions or clarifications, as part of an extension of the expiring [bailout] program and the new [third] loan agreement for which a request was submitted today, Tuesday June 30th 2015,” Mr Tsipras wrote. He added: