Good morning

The headlines:

1. The Spanish banks are trying to not write off loans on property developers. Link: Even though some of them haven’t built anything in over a year. The policy of “delay and pray” is what everyone is calling it. In case you haven’t been following – the Spanish government is getting banks to clean up their acts and/or books by making provisions for loans that may not get paid back*. According to Spain’s Economic Ministry**, Spanish banks have €184 billion of developer loan assets that are considered “problematic”, and a further €123 billion that are considered “performing”. But “performing” is a measure of subjective opinion. “Performing” could just mean “I’m sure they’ll pay it back – because the CEO is a mate and his sister is married to my second-cousin”. If they’re wrong, and it all goes a bit pear, then the Spanish government will have to step in to protect the banks. It all sounds like Greek to me.
2. The dollar is scarce. Link: Top quality assets shrink 42%. Despite the Fed putting $2.3 trillion into the system, the dollar is continuing with its relative strengthening trend. I come back to the “giffen good” type suggestion (wrote about it here). When you have the bulk of the world’s wealth sitting in institutional investment funds: which are legally required to invest the bulk of their money in highly-rated assets; and these highly-rated assets are being downgraded by ratings agencies everywhere; the money begins to shore up in the assets remaining. It’s like the lion escape story – I don’t need to run faster than the lion, just faster than the guy next to me. The US versus the Eurozone is the running race equivalent of a man with cancer (in apparent remission) against the gentleman with one leg. And China? Well it doesn’t really like foreign investors – so it’s not in the stadium.
3. The Greek Democratic Left considers supporting Syriza. Link: But only if there’s a euro pledge. Except, like, Syriza wants out the euro – and won’t hear anything otherwise. What a mess. And what it means is that the next election could end up resulting in another one.
4. Blackberry’s RIM has over $1 billion in inventory. Link: Can anyone say “write-down”? The amount of inventory has increased by over 60% in the past year, while RIM’s market share has fallen to about 6.4% of the global market (compared to Apple’s 23% and Android’s 59%). And now they’re looking to revive themselves by releasing new models. So what’s going to happen to the old stock? Expense write-offs. Death knoll for sure. Bye bye BBM.
5. Citigroup disbands its toxic asset panel. Link: Because they don’t have toxic assets no more? Well no. When the board was created during the subprime crisis, it oversaw about $600 billion of assets that looked to be going bad (CDOs, mortgage securities, Greek bonds). When it was dismantled, that figure was sitting at $200 billion. The task was to monitor the assets and recover what they could. So what we’re really saying is that Citigroup is now left with the $200 billion that they couldn’t do anything with? Woah. Can you imagine – and we practically crucified Jamie Dimon for a $2 billion loss. The plan is to continue disposing of the assets in an “economically-rational manner”. Which means what, exactly? Somewhere in all of this – there is an auditor that’s not doing his job. Because write-downs are write-downs and you just have to write sh*t down.
6. Moody’s is irrelevant. Link: Because everyone just seems to be ignoring them. Moody’s just downgraded some Nordic banks. And what happened to these Nordic banks? Their bond and share prices went up. Not exactly what should have happened. More like exactly the opposite. The theory out there is that analysts are relying on their own analysis more. Possibly – but let’s not forget those institutional investors whose investment allocations are heavily dependent on credit ratings*** – they would normally have to make some reallocations when the ratings go south. The other option is that Moody’s is re-rating too late in the game – and everyone else has taken notice and made their moves already. Either way – the point is – what would have caused serious drama a year ago was met with calm bemusement in a non-eventful sort of way. How times have changed!
7. The US wants a national safety board for financial crashes. Link: Like they say after every crisis.

That’s all for now.

Have a good day.

*Obviously, for a bank, any loan they give out is an “asset” that represents their right to receive the money back from a borrower. But, like, your right isn’t really worth anything if your borrower isn’t going to pay it back – therefore, you need to write that asset down to what you actually expect to get back. In practice, the “provision” is the amount of your write-down.

**Which seems an odd name for a ministry – isn’t it normally a ministry of finance? Random side-thought.

***Although I’m not really sure what the rule is when only one of the three main ratings agencies drops the rating. Perhaps the institutional investors can just ignore the issue if there’s only one RA taking a stand.