Spain uses social security fund to prop up the bond market

[DBCooper]

Spain uses social security fund to prop up the bond market

By Ambrose Evans-Pritchard
Last updated: August 24th, 2010
http://blogs.telegraph.co.uk/finance/amb....

Spain is putting all its eggs into one basket, and if it carries on like this, we may start to see a lot of Basques and Catalans crowding into one exit.

The state pension fund – the €64bn Fondo de Reserva, known as the ‘hucha de las pensiones‘ – is buying Spanish sovereign debt at a vertiginous pace.

The financial daily Cinco Dias reports that the share of the Fondo’s total portfolio invested in Spanish government bonds rose from below 50pc in 2007 to 76pc in 2009.

The Social Security minister Octavio Granado said it will rise to 90pc by the end of this year.

It is clear from an analysis of the data that the Fondo is not just investing fresh revenues in Spanish bonds, but also rotating out of Dutch, French, and German bonds into Spanish debt. The Spanish government is also funnelling 90pc of its sickness fund into state bonds.

Evidently, Spanish savers are underpinning Madrid’s Treasury auctions, whether they like or not. It is they who are mopping up the debt along with the European Central Bank as foreign creditors stay away. The Bank of New York Mellon said that its iFlow data on bonds reveal that foreign demand for Spanish debt has “dried up” again after a brief recovery in July. There has also been some “net selling” of French bonds. I think we will hear more of that Gallic sub-plot over the next year.


Quote:
Sr Granado said the sole motive for the purchases is to reap a higher yield. Spanish 10-year bonds were trading yesterday at 173 basis points over German Bunds. But there again, spreads on Greek bonds were at 853 points, so if yield is what you want – and if you believe EU assertions that default/EMU exit by any eurozone member is preposterous – then why not buy Greek debt? Unless, unless, but let’s not labour the point.


http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100007427/spain-uses-social-security-fund-to-prop-up-the-bond-market/

[DBCooper]

Anglo capital fears as loan transfers get 61pc discount

By Emmet Oliver


Monday August 23 2010

The second tranche of Anglo Irish Bank loans finally transferred to the National Asset Management Agency (NAMA) at the weekend, attracting about a 61pc discount, or 'haircut', prompting fresh fears the lender could need extra capital. Poor security on the loans was a key factor in the discount.

Nama chief executive Brendan McDonagh has written to five banks involved in NAMA telling them to "step up" their work in processing loans so that most are transferred over by year-end, banking sources revealed.

NAMA has also appointed Deloitte, the accountancy firm, to review the banks' procedures in handling loans.

The amount of information required from banks in third and subsequent tranches is also set to reduce in order to speed the process up.

Finance Minister Brian Lenihan rejected the idea of shutting down Anglo when speaking in Cork yesterday. He said it would be a catastrophe.

"Solutions that would make Ireland an international pariah, walking away from our financial commitments or from our EU obligations, are just not credible. We must be realistic in our approach to this crisis," he said.

"Fury is quite a reasonable response to the incredible recklessness and incompetence which fuelled the banking mania of the Celtic Tiger years," he added.

NAMA will release a statement on the second Anglo transfer today or tomorrow, confirming the loans have moved over. The loans have been moving over gradually during the past three weeks.

The NAMA team dealing with Anglo have discovered defective securities on a large number of the €7bn of loans going over. Some loans were moved over and Anglo received no payment for them, sources pointed out.

Non-recourse loans and loans backed up by multiple securities have been the chief problems pushing up the Anglo discount.

The first tranche attracted a 55pc discount and the concern for the Government and Anglo is that the discounts are continuing to worsen.

The book value of the loans transferring was €7bn and applying a 61pc discount would mean NAMA paying €2.73bn for the loans. The prevalence of development land in the loan portfolios was a key factor, but the issue of defective or inadequate securities on the loans pushed up the discount considerably.

The third tranche of loans, for banks generally, is due to happen in September, with the fourth tranche going in October, the fifth in November and the sixth in December, Mr McDonagh has told the banks.

Enforcement

It is possible a small number of the loans will still have to be transferred early in 2011, but the amount of loans involved at that stage will be small.

September is also the month when NAMA expects to sign off on a number of business plans from leading developers.

Enforcement action is planned against several development companies, but others will have their business plans approved. This in itself does not guarantee a clean bill of health, sources say. The development companies still have to hit targets and sell off assets.

Nama is still seeking information from some developers and is not happy with their assumptions about the property market.

- Emmet Oliver
http://www.independent.ie/business/irish/anglo-capital-fears-as-loan-transfers-get-61pc-discount-2307929.html

[DBCooper]

S&P warns of huge 'haircuts' if Eircom defaults

By Emmet Oliver Deputy Business Editor


Monday August 23 2010

Some debt holders in Eircom could receive as little as 10 cent in the euro if the telecoms company defaults on its €3.6bn of debts, according to an analysis by a leading ratings agency.

Standard & Poor's (S&P) has done a 'recovery analysis' on the debt held by the parent companies that own Eircom.

While senior secured debt is likely to have recovery rates of between 90 and 100pc in the event of a default, debt holders further down the credit list could be facing big haircuts.

The second-lien loan, known as loan D, is only likely to leave holders with a recovery of between 10pc and 30pc of their principal.

The holders of a €425m payment in kind (PIK) loan would be facing the most severe haircuts. "The recovery rating on this debt is six, indicating our expectation of negligible recovery (0pc to 10pc) in the event of a payment default,'' state the company's analysts.

Eircom strongly rejects any suggestion that it could default on its debt load. However, speculators in the market who hold bond insurance -- known as credit default swaps (CDS) -- take a different view and this has sent the value of CDS contracts soaring in recent months.

S&P gives Eircom a valuation of €3bn in a distressed environment. It says that while Eircom has leading market positions and a "satisfactory business risk profile'', a default from excessive leverage cannot be ruled out entirely.

Revenues

While Eircom is not in default on any loans, the pressure is building because the company's revenues and earnings are falling, potentially triggering a breach of its loan covenants.

S&P says: "We think revenues will continue to fall in the coming quarters as difficult economic conditions are likely to continue. This will compound structural declines in fixed telephony revenues."

Offsetting this is Eircom's ambitious cost-reduction programme, which has been noted by the ratings agencies.

The pension deficit at the company has also been tackled in recent months, but this has had little impact on the debt ratios, the agency points out.

"Eircom's cash-generating ability is likely to remain constrained because of its high interest burden, a difficult operating and competitive environment, restructuring payments and significant capital expenditures," said the latest note.

While the company is facing a serious debt headache, the liquidity position of the company is strong, states the agency.

Eircom has €267m of unrestricted cash to call on in case of emergencies and another €123m in an undrawn credit facility. The debt problems facing the company are more long term, the agency accepts.

It points out that the undrawn facilities and cash cover "modest debt maturities'' of €44m in the next financial year and €88m in financial year 2012. Eircom's financial year ends in June each year.

The company seems unlikely to get any relief from the ratings agencies in the foreseeable future. S&P concludes: "At this stage, we deem the chances of a higher rating in the future to be remote, as this would likely require the removal of covenant pressure on a sustained basis."

- Emmet Oliver Deputy Business Editor
http://www.independent.ie/business/irish/sp-warns-of-huge-haircuts-if-eircom-defaults-2307927.html

[DBCooper]

Sometimes there is consequences.

http://www.huffingtonpost.com/2010/08/23/bank-settlements-judges-t_n_692048.html

[DBCooper]

http://www.youtube.com/watch?v=UoE_U2lXMWo



Gasparino Says Goldman Won’t Spin Off Proprietary Trading: Fox

By Libby Sallaberry
Aug. 23 (Bloomberg) -- Fox Business’s Charlie Gasparino
says Goldman Sachs won’t spin off proprietary trading unit.
• GS trading near session low -1.1%
Link to Company News:{GS US <Equity> CN <GO> }

[DBCooper]

See anything wrong with the Dollar?

[DBCooper]

The cat is out,many Muni's are selling to the wind to fund pensions,it will be like dominoes.

Afterall they cant tax the people anymore?

[DBCooper]

Gasparino Says Goldman Won’t Spin Off Proprietary Trading: Fox


Oh yess they will as long as Gross begs,pleads,to Obama Bernanke will shoot another load.