The Bank of Japan said Wednesday it will inject 2 trillion yen in one-year funds through a lending facility under which the central bank will provide banks with loans against pooled collateral at a fixed interest rate.

The fund-supplying operation, which begins Friday and ends on May 16, 2014, will be the BOJ’s first with a one-year fixed rate since April 16.

The BOJ is conducting the operation to address the sharp rise in longer-term interest rates.

What is Killing Europe
 
The bigger the real-life problems, the greater the tendency for people to retreat into a reassuring fantasy-land of abstract theory and technical manipulation.
 
Many people have little or no understanding of what is presently taking place in Europe. This is because it is reported nowhere, discussed in public by no one and carefully hidden in the data supplied by the European Central Bank. 
 
What I will discuss today is the prime mover, in my opinion, of the destabilization of the European economies and yet, like the debt to GDP ratios on the Continent; just because it isn’t counted does not mean that it does not exist. I will endeavor to explain it as simply as possible.
 
A bank in some European country such as Spain lends money but the collateral, Real Estate or commercial loans, are going bad. The bank then securitizes a large pool of this collateral and pledges it at the ECB to receive cash. In many cases to take the pool the country has to guarantee the debt. So Spain, in my example, guarantees the loan package which is then pledged at the ECB and is a contingent liability and which is not reported in the debt to GDP ratio of the country but nowhere else that you will find either. “Hidden” would be the appropriate word. >> Read More

Wondering why the Italian bond market has been stable and “improving” in recent months, with yields relentlessly dropping as a mysterious bidder keeps waving it all in despite the complete political void in the government and what may be months of uncertainty for the country, and despite both PIMCO and BlackRock recently announcing they are taking a pass on the blue light special offered by BTPs? Simple. As the Bank of Italy reported earlier today, total holdings of Italian bonds by Italian banks hit an all time record of €351.6 billion in February.

Why are local banks loaded to the gills in the very security that may and will blow up their balance sheets when the ECB loses control of the European sovereign risk scene as it tends to do every year? Because courtesy of ECB generosity, Italian debt continues to be “cash good collateral” with the ECB, and as a result Italian banks can’t wait to pledge and repo it with Mario Draghi in exchange for virtually full cash allottment. In other words, the more debt the Italian Tesoro issues, the more fungible cash the Italian banks have to spend on such things as padding up their cap ratios and making their balance sheets appear like medieval (any refernce to Feudal Europe is purely accidental) fortresses.

Source: Reuters and Bank of Italy

A legal dogfight looms over part of the £1.3bn cash Diageo is paying for United Spirits, the Indian drinks group owned by mercurial liquor baron Vijay Mallya.

The acquisition will give the world’s biggest distiller control of India’s biggest drinks company and also hands some much-needed cash to the debt-burdened Mr Mallya, whose grounded Kingfisher Airlines is estimated to owe at least $2.5bn to creditors, mainly Indian state-banks.

 Lawyers are working round the clock to see who will be able to access the cash – Mr Mallya or his creditors, some of whom are holding United Spirits shares as collateral for loans to Kingfisher.

Diageo, maker of Johnnie Walker whisky and Smirnoff vodka, is understood to have structured its part of the deal in a way that enables it to “pay unfettered cash for unfettered shares,” according to people familiar with the matter. >> Read More

 RBI opened the door on Thursday to foreign institutional investors (FIIs) using investments in corporate and government bonds as collateral in the futures and options segment of stock exchanges. 

The move announced by the bank is expected to improve liquidity in the derivatives market, one foreign bank dealer said. 

The Reserve Bank of India also said it was permittingFIIs to use their investments in corporate bonds as collateral in the cash segment of the stock market. 

The RBI also mandated banks to report all over-the-counter currency derviative deals with clients on the central bank promoted reporting platform known as theClearing Corp of India Ltd (CCIL) from April 2, it said in a separate circular. 

This will improve transparency and provide a better guage to the central bank on the extent of derivative exposure that corporates have, a senior official at CCIL said.

Country’s largest private sector lender ICICI Bank will auction this month gold jewellery weighing nearly 25 kg, which has been pledged with it for loans and the concerned borrowers have defaulted on their payments.

The auction would be conducted across various branches of ICICI Bank across Uttar Pradesh on March 16 for gold jewellery deposited by about 100 customers as collateral for their loans, ICICI Bank said in various public notices today.

While neither the exact value of the gold ornaments being auctioned, nor the outstanding loans, could be ascertained, an equivalent amount of gold would be worth over Rs seven crore at the current price.

It is a usual practise to take gold loans by pledging jewellery with banks, but such ornaments can be auctioned by banks after giving sufficient notice to the borrower in case of payment defaults. >> Read More

Two former chiefs of Afghanistan’s Kabul Bank have been sentenced to five years in jail for the multi-million dollar fraud that almost led to its collapse in 2010.

Founder and former chairman Sherkhan Farnood and ex-CEO Khalilullah Ferozi were tried in a special court.

Revelations of massive corruption led to a run on the bank in 2010.

Foreign donors bailed it out fearing its failure could lead to the collapse of Afghanistan’s fragile economy. >> Read More

 Reserve Bank is contemplating to allow foreign institutional investors (FIIs) in currency futures market, Deputy Governor H R Khan today said.

“We are thinking whether FIIs can participate in currency futures,” Khan said while speaking at a seminar on capital markets organised by industry bodyCII here.

He said the RBI is also mulling allowing a repo incertificate of deposits (CDs) issued by banks and commercial papers (CPs) by corporates.

This move, if allowed, will help expand the corporate bond market. Normally, CDs and CPs are of short-term maturity of say, one to six months.

He said discussions to bring down “haircut” on repo or keeping it tenor based, are at an advanced stage and the RBI will come out with guidelines on the same in the next few weeks.

A haircut is a percentage that is subtracted from the market value of an asset that is being used as collateral. >> Read More

• GREECE CUT TO SD FROM CCC BY S&P
• S&P CUTS GREECE’S LONG-TERM DEBT RATING TO ‘SELECTIVE DEFAULT’ 

SD, by the way, stands for Selective Default. At least the acronym is not Selective Transitory Default: that would really summarize the situation. 

In other words, Greece is technically default, and why? To make sure a few hedge funds have a great year and get paid on the Greek bonds at double their cost from 4 months ago. The Greek people just get a t-shirt that says “Third Point made a killing, and all i got was this louse Selective Default.” 

But the best news is that Goldman’s European central bank branch is now delighted to accept defaulted, whether selectively or unselectively, Greek bonds as full faith and credit collateral of that multi-colored European currency.

The European Central Bank (ECB) is checking whether it may have contravened its own strict rules by lending to Spanish banks on overly generous terms, an ECB spokeswoman said on Sunday.

German newspaper Die Welt am Sonntag, citing the results of its own research, said that banks had borrowed funds from the ECB and taken a haircut of 0.5 percent even though the creditworthiness of the Spanish T-bills they provided as collateral should have required the ECB to apply a haircut of 5.5 percent.

The rating of some paper should have made them completely ineligible as collateral for the ECB, the newspaper added.

“The ECB is investigating the matter,” the bank spokeswoman said. >> Read More