Friday 26 November 2010

European Sovereign Debt - There will be blood

There will be blood...when it comes to European Debt. There will be haircuts and restructuring. For Greece, the markets already know it cannot be avoided.

It is already happening for some Irish Banks Sub debt which will bare the brunt of significant haircuts. It will be extended probably to senior debt as well.


When it comes to politicians and their lack of moral values and to what extent they are ready to go to plug the gaps in their mis-managed budget, I give you Hungary this week, as highlighted in a Bloomberg article by Zoltan Simon:

Another country, another amazing heist: Hungary following the steps of Argentina.

"Hungary is giving its citizens an ultimatum: move your private-pension fund assets to the state or lose your state pension."

"Economy Minister Gyorgy Matolcsy announced the policy yesterday, escalating a government drive to bring 3 trillion forint ($14.6 billion) of privately managed pension assets under state control to reduce the budget deficit and public debt. Workers who opt against returning to the state system stand to lose 70 percent of their pension claim."

“This is effectively a nationalization of private pension funds,” David Nemeth, an economist at ING Groep NV in Budapest, said in a phone interview. “It’s the nightmare scenario.”

You can expect EUR/HUF currently trading at 270 on the 25th versus the Euro, to go much higher...280 on the 26th...

"Hungary’s pension changes are making the country more risky for investors, according to market reactions to the government’s plan. The forint weakened 2.1 percent versus the euro so far this month, making it the world’s worst-performing currency for that period."

Foreclosed Homes for Sale in Spain May Triple in 2011:

There will be blood...

"Spanish lenders have a total of 181 billion euros ($242 billion) in “troubled” construction and real estate loans, the Bank of Spain said last month. Since Sept. 30, the banks have been required to account for falling property values more quickly, encouraging them to shed assets without waiting for the market to recover from a three-year decline."

Price Reductions

“By changing the rules on provisions, the central bank has really put a shotgun to their heads,” said Fernando Rodriguez y Rodriguez de Acuna, founder of Madrid-based property adviser R.R. de Acuna & Asociados. “The banks will have to cut their price expectations more aggressively to reduce their stock of homes.”

"Property values will fall 20 percent over the next five years, Rodriguez y Rodriguez de Acuna estimates. Most of the declines will come in 2011, he said. Since the Spanish market’s peak in April 2007, home prices have dropped 22.5 percent, according to a survey by real-estate website and IESE Business School.

Under the changes introduced by the Bank of Spain in September, lenders must take account of a drop in value of at least 30 percent if they keep the assets for more than two years. They must also make provisions for bad loans after 12 months, rather than as long as 72 months.

The new rules will lead to an average increase in provisions for 2010 of 2 percent, the central bank said in May. They will also knock off an average of 10 percent from the pretax profit that lenders generate from their Spanish businesses, the Bank of Spain said."

Ireland, Portugal next, and the scary Spain...

Source: The Economist, November 27th issue, page 30.

For 2011, in the US you can also expect trouble in the US coming from the Municipal bond space.

The ongoing deflation of the housing bubble is still the ongoing theme. At the same time you have inflation in commodities due to QE2 and the debasement of currencies. The US need a new RTC has I posted previously. The sooner, the better.

No comments:

Post a Comment

View My Stats