Remy is the neighbor's white Lab, an absolute sweetheart of a dog. They're off to Spain for a bit and had everything set-up (no kennel for Remy!) until...Anyway, we have been pressed into dog sitting which is why nothing was accomplished on Friday.
So, Argentina. The senate OK ed the agreement with the holdout creditors allowing Argentina to settle their debts and move on. Good news for all concerned despite the fact that this could have happened years ago at less cost if Argentina had not been run by crooks and morons but no matter. It's done and it is behind them and they can move on...except that they have not nearly enough money to pay this thing off. In the real world of yester-year this might have been a problem but in the new, Faerie Coo-Coo world of international finance, No Problema, Che, we just borrow the damn money, no? I mean what is $12,500,000,000? Nada, por uno pais del premiero mondo. (I was actually presented with that designation once way back when...damn near died laughing)
Well, maybe. At last report a road show has been assembled consisting of DeutscheBank, J.P. Morgan, HSBC and...ready for it...Santander, with Bilbao, UBS and Citi along for the ride. 10 years, proposed 7.75% coupon, no other details.
Now for those of you not familiar with this sort of stuff, these things usually consist of two tiers of institutions within the syndicate putting together such deals. One tier is known as the underwriters--and that tier has various levels--and the second tier are members of the selling group. They don't really count so we shall focus on the first tier alone.
The underwriting group, in the best of all worlds, essentially guarantees the success of the issue by agreeing to buy, with their own resources, the (in this case) bonds "when issued." Again, in the best of all worlds, everybody will want a piece of the action and the underwriters will be able to distribute the entire issue for more than they paid for it thereby making their profit on the deal aside from any fees they may have collected.
Now $12.5 billion is a fairly good piece of change; in fact this would be the largest new issue from an emerging market country in history (sorry, Argies, you are not First World and never have been) by a wide margin. The coupon of 7.75% is priced off the mega-deal done by the Mexican oil company, PEMEX. Insider note: Argentina would NEVER be seen paying more than the Mexicans..."Little Brown Gringos" as they are called in B.A. Suffice to say, this is not going to be a walk in the park. Why? Consider the following.
1. It is a hell of a lot of money.
2. Emerging market debt, while recovering, has just taken a hell of a beating.
3. Argentine creditors over the past 10 years have taken a hell of a beating.
4. DeutscheBank does bonds. Morgan does bonds. HSBC doesn't do bonds. Santandere...who?
5. To say that Argentina is less than prime rated...
6. 7.75% coupon. Well, it beats the 10 year Bund but Argentina has defaulted on one thing or another every 35 years for the past 200 years.
7. One of the problems with Argentina is that the provinces can issue debt in international markets. That's what caused the problems in 2001. They are going to do it again in competition with the Sovereign...at a higher yield. Really want Argie risk...wait a month or two.
Then again, on the positive side, the yield whores are alive and well. The Mantra? I will always have a chair when the music stops. Greed always overwhelms experience.
There is one thing, however, I don't quite get. Take DeutscheBank...please! This is not an institution in the best of shape at least by the standards that the world overseers use today. To lead this management group DB MUST have an underwriting commitment of at least $1 Billion and probably a good deal higher than that. How in heaven's name can the Bundesbank, in good conscience, turn to the rest of the world and admit that they are comfortable with this risk...and make no mistake, an underwriting risk is a REAL risk. This is a deal that cannot fail from a whole variety of reasons, but if DB winds up wearing half a billion dollars of Argie risk and has to take a 10-20% mark on that, what are Mr. & Mrs. Schultz, taxpayers, going to have to say? Then again, I'm a long time out of this fray and I could be completely wrong. If I am, however, I'm afraid we are in even worst trouble.
Will be following how this goes all week. It's fascinating. Oh, went over to see Remy in the middle of writing this piece. Somebody still loves me.
Showing posts with label Deutsche Bank. Show all posts
Showing posts with label Deutsche Bank. Show all posts
Monday, April 11, 2016
Monday, March 2, 2015
AN INTERESTING WEEK
On the surface, it looks as though nothing is going on. Not the case. On Thursday, the Fed will release the abbreviated results of their latest stress tests and if reports are correct, a couple of banks are going to be on the hot seat whose nationality may result in even greater worries.
The banks are Deutsche and Santander and I will not even attempt to delve into what's wrong (if anything) or the methodology as to how the Fed decides if there is anything wrong. I haven't a clue and neither does anyone else. In fact, I'm not sure that the Fed is in complete agreement as to what or how this should be approached.
You might remember that last year Citigroup failed the stress test. Now say what you want about this bunch, one thing they are not is stupid. Nor were/are they not attuned to the importance of the stress test because without a passing grade they are in limbo in an attempt to execute a corporate strategy as is their stock price. I don't think I'm telling tales out of school because everyone know by now what happened but last year they thought they had it made. They were working hand in glove with their overseers from the N.Y. Fed only to be told at the last minute that they had failed. The meeting at which this occurred was considered so pro forma that the CEO was out of the country. It seems that having followed the rules laid out by their regulator they were told that those rules were not those of the regulator's bosses...the Federal Reserve in Washington. Needless to say, despite his guys being crapped on and made to look like fools, Billy the Dud folded like a cardboard box.
I shall resist commenting further other than to point out that the guy in charge in D.C. is Danny Tarullo, the shill for Crazy Lizzy who desperately wants a scalp, shareholder's best interests be damned. It is also important to keep in mind that neither of them are too happy with either Deutsche or Santander and have said so publicly so one can expect the worst come Thursday.
Now there are some really questionable things that have swirled around these two institutions for quite a while but putting the hurt to a couple of banks that are owned elsewhere is a different thing than beating all over Citigroup despite it's size. Whatever the outcome, it seems to me that it would be in everyone's best interest that this time around the Fed make it perfectly clear what the ground rules are and the methodology used to evaluate the same. No normal person will understand them but those with doctorates from MIT or Cal Tech will get to the bottom of this and explain it to us in due course. Now, if they don't do it that way, I suspect that the folks in Euroland might get a touch upset. These are not insignificant institution; the last thing we need at this stage is a--pardon the phrase--pissing contest among regulators. And for all concerned, the methodology had better make sense...not just because they don't wind up looking like--or not like--that wonderful Savings and Loan, Wells Fargo, with whom both Danny and Lizzy seem to be having an affair.
Speaking of Wells, they today announced that they were cutting back on their sub-prime lending to no more than 10% of their portfolio. Now that's a more important announcement I think that the attention it received because Wells' sub-prime activities were heavily weighted towards auto lending and that piece of the economy has been one of the best performing over the past couple of years. A lot of the success has been based upon the huge availability of financing despite credit ratings. Interestingly enough, this business is also one of the strengths of Santander. Connection? Nah, but a fun juxtaposition. Finally, do not forget that Citi is also awaiting the results of it's stress test. They need a "pass" on this one badly...really badly. As regular reader know, I think the guys running the place have done simply a fabulous job over the past few years, so I wish them luck.
Finally, in the week that will be, the future of Greece will become--perhaps--more clear. A lot of folks in the government were speaking out over the past few days and a lot of dumb things were being said. Hopefully, that will change except that I'm not sure if I would listen to those reported to be giving the government advice. Zealotry without skin in the game is easy; it gets harder when your country's future is at stake.
The banks are Deutsche and Santander and I will not even attempt to delve into what's wrong (if anything) or the methodology as to how the Fed decides if there is anything wrong. I haven't a clue and neither does anyone else. In fact, I'm not sure that the Fed is in complete agreement as to what or how this should be approached.
You might remember that last year Citigroup failed the stress test. Now say what you want about this bunch, one thing they are not is stupid. Nor were/are they not attuned to the importance of the stress test because without a passing grade they are in limbo in an attempt to execute a corporate strategy as is their stock price. I don't think I'm telling tales out of school because everyone know by now what happened but last year they thought they had it made. They were working hand in glove with their overseers from the N.Y. Fed only to be told at the last minute that they had failed. The meeting at which this occurred was considered so pro forma that the CEO was out of the country. It seems that having followed the rules laid out by their regulator they were told that those rules were not those of the regulator's bosses...the Federal Reserve in Washington. Needless to say, despite his guys being crapped on and made to look like fools, Billy the Dud folded like a cardboard box.
I shall resist commenting further other than to point out that the guy in charge in D.C. is Danny Tarullo, the shill for Crazy Lizzy who desperately wants a scalp, shareholder's best interests be damned. It is also important to keep in mind that neither of them are too happy with either Deutsche or Santander and have said so publicly so one can expect the worst come Thursday.
Now there are some really questionable things that have swirled around these two institutions for quite a while but putting the hurt to a couple of banks that are owned elsewhere is a different thing than beating all over Citigroup despite it's size. Whatever the outcome, it seems to me that it would be in everyone's best interest that this time around the Fed make it perfectly clear what the ground rules are and the methodology used to evaluate the same. No normal person will understand them but those with doctorates from MIT or Cal Tech will get to the bottom of this and explain it to us in due course. Now, if they don't do it that way, I suspect that the folks in Euroland might get a touch upset. These are not insignificant institution; the last thing we need at this stage is a--pardon the phrase--pissing contest among regulators. And for all concerned, the methodology had better make sense...not just because they don't wind up looking like--or not like--that wonderful Savings and Loan, Wells Fargo, with whom both Danny and Lizzy seem to be having an affair.
Speaking of Wells, they today announced that they were cutting back on their sub-prime lending to no more than 10% of their portfolio. Now that's a more important announcement I think that the attention it received because Wells' sub-prime activities were heavily weighted towards auto lending and that piece of the economy has been one of the best performing over the past couple of years. A lot of the success has been based upon the huge availability of financing despite credit ratings. Interestingly enough, this business is also one of the strengths of Santander. Connection? Nah, but a fun juxtaposition. Finally, do not forget that Citi is also awaiting the results of it's stress test. They need a "pass" on this one badly...really badly. As regular reader know, I think the guys running the place have done simply a fabulous job over the past few years, so I wish them luck.
Finally, in the week that will be, the future of Greece will become--perhaps--more clear. A lot of folks in the government were speaking out over the past few days and a lot of dumb things were being said. Hopefully, that will change except that I'm not sure if I would listen to those reported to be giving the government advice. Zealotry without skin in the game is easy; it gets harder when your country's future is at stake.
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