- Erich Maria Remarque, All Quiet On The Western Front, Ch. 2
"The phrase "all quiet on the western front" has become a colloquial expression meaning stagnation, or lack of visible change, in any context." - source Wikipedia
As our good credit friend put it recently:
So yes "All Quiet" on the Western European Economic Growth front - US PMI versus Europe PMI - source Bloomberg
In Nomura recent "10 things we did not know" published on the 5th of April, they indicated:
"Maybe looking to Asia for the epicenter of the next risk-off move is not the right idea..."
"Did you know that in the latest PMI releases, emerging markets are outperforming G10 economies, while European PMIs are still below 50 and Asia is the main driver of improvement?"
"All Quiet" on the Western European Unemployment front - source Bloomberg:
"All Quiet" on the Western European Peripheral banking front - source Bloomberg:
The shares fell as much as 27 percent, or 31.2 euro cents, to 85.5 cents and were down 15 percent at 9:21 a.m. in the Portuguese capital, giving the lender a market value of 1.44 billion euros.
Espirito Santo, based in Lisbon, said yesterday after the close of trading that it will offer 2.56 billion shares to existing shareholders at a subscription price of 39.5 cents each. The stock price closed yesterday at 1.167 euros.
The rights offer will allow the bank to buy out its partner in an insurance unit and to increase its core Tier 1 capital ratio to 10.75 percent from 9.21 percent. Espirito Santo said it also agreed to buy 50 percent of the BES Vida insurance unit from Credit Agricole SA (ACA) for 225 million euros." - source Bloomberg
In our conversation relating to bond tenders "Subordinated debt - Love me tender?", back in October Banco Espirito Santo had announced a capital increase in effect via a bond tender. Banco Espirito Santo was trading at 1.51 euros per share and it meant that the debt to equity swap initiated in October lead to a dilution of 83.5% of the shareholders. Banco Espirito Santo total market cap was approximately euro 1,743 million in October last year.
At the time we argued:
"The need to raise capital will be acute for peripheral countries due to issue of circularity we previously discussed. Given we know by now that access to capital is only open to better quality issuers in the financial space, the current level of financial spreads for weaker issuers, make it impossible for them to access funding at reasonable rates. Survival of the fittest is still the name of the game with the liquidity support provided by the ECB for these weaker players."
"All Quiet" on the Western European Housing front - source Bloomberg:
Immigrants Lured in Boom Lose Most in Imploding Spanish Market: Mortgages -Unwanted Assets:
We agree with Bloomberg's editors take that Spain is entering a dangerous deflation trap, given the very significant fiscal tightening requested by the European leaders to achieve an overly ambitious target of 3% in 2013:
Spain Not Greece Is the Real Test for the European Union - Bloomberg
"The problem is not that Spain’s new austerity plan is too timid. Just the opposite: Under EU orders, Spain is promising what might be the tightest fiscal squeeze that it or any other European economy has ever faced. The new plan calls for the budget deficit to fall from 8.5 percent of gross domestic product to 5.3 percent this year. Since the economy is already shrinking, this requires a discretionary fiscal tightening of roughly 4 percent of GDP -- with the unemployment rate already standing at about 23 percent."
In their latest European Credit Tracker UBS argues the following in relation to the impact the LTRO has had on the Spanish banking system. We have long argued it amounted to "Money for Nothing":
In their note, UBS also indicated as well credit trends in February 2012:
"The latest data release by the ECB showed a m/m decline of €19.4bn in total credit in Feb 2012. All major economies except Germany showed a m/m increase in total credit (€2.8bn). Once again m/m credit declined the most in Spain (-€9.1bn), declining 13 times in the past 14 months."
We hate sounding like a broken record but, no credit, no loan growth, no loan growth, no economic growth and no reduction of aforementioned budget deficits:
"So austerity measures in conjunction with loan book contractions will lead unfortunately to a credit crunch in peripheral countries, seriously putting in jeopardy their economic growth plan and deficit reduction plans."- "Subordinated debt - Love me tender?" - Macronomics, October 2011
"In Spain the annual growth rate of loans to household adjusted for sales and securitization is -2.7% as against the unadjusted growth rate of -2.0%." - source UBS
In August 2011 we wrote in our conversation "It's the liquidity stupid...and why it matters again...":
"Lack of funding means that bank will have no choice but to shrink their loan books. If it happens, you will have another credit crunch in weaker European economies, meaning a huge drag on their economic recovery and therefore major challenges for our already struggling politicians.
As a reminder, 50% of banks earnings for average commercial banks come from the loan book: no funding, no loan; no loan, no growth; and; no growth means no earnings."
Hence our BIG reservations in relation to the unachievable Spanish deficit target of 3% in 2013. (which interestingly gives us our title for our upcoming credit post - "A Deficit Target too far", in reference to 1977's movie "A Bridge Too Far" relating to the overly ambitious Operation Market Garden, but we ramble again...).
"I rambled all the time. I was just like that, like a rollin' stone."