The Economissed: The Italian Job
Whistle along at home here!
When it comes to the next domino downgrade to fall look no further than Italy which, as I said yʼday, remains a real concern for the EU here – especially now Moodys have taken unkindly to being seen as a rather inept force.The EU Governments, of course, know how to Rate bonds better than the Raters and we should all simply accept that – Jawohl !
Super Mario Draghi is in charge, a well respected X- Vampire Squid – born 3 September 1947, an Italian banker and economist who has been governor of the Bank of Italy since 16 January 2006. He has been designated to succeed Trichet as President of the ECB by November 2011. When it comes to the periphery of Europe, especially in terms of Greece, Spain, Portugal & Italy – what we have already seen is that itʼs clear the Euro will continue for now – because the powers that be are actually just the…
…SOUTH PRESERVATION SOCIETY….
Draghi was Vice Chairman and Managing Director of Goldman Sachs International and a member of the firm- wide management committee (2002–2005). A controversy existed on his duties while employed at Goldman. Pascal Canfin (MEP) asserted Draghi was involved in swaps for European governments, namely GREECE, trying to disguise their countries’ economic status. Draghi responded that the deals were “undertaken before my joining Goldman Sachs & I had nothing to do with them” - in the 2011 European Parliament nomination hearings, well thatʼs ok then – the Greeks complained but no one was listening…and anyway, itʼs all water under the bridge now.
Europeʼs South Preservation Society will be hoping that Trichet doesnʼt go too far with tightening talk today as we strongly suspect / know that any new loans will be tied to 3m Euribor, a hike (just in time for Italy to get sucked in to the downgrade vortex) to contain inflation is pure genius.
In terms of Italy – at the end of June (30th) CDS spreads had accelerated upward for the largest Italian banks which Moodyʼs rates. This had led to underperformance in the CDS markets as revealed by drops of one to three notches in the banksʼ CDS-implied ratings, following improvement early this year. CDS spreads on BPM, BPSC, and UBI have widened 70%, 64%, and 59%, respectively, in the last month – according to Capital Markets Research, the largest moves in their global bank universe.
They wrote back in May that: Italian banks had shown generally positive credit market performances in the period from February to April, following Mario Draghiʼs call for them to shore up their balance sheets in advance of the summerʼs stress test. We believed these movements indicated that debt investors were favorable toward the equity offerings, completion of which would improve the quality as well as the quantity of the institutionsʼ capital1. However, we noted that investors were likely to punish issuers for too much delay if the environment were to become more stressed (Portugal getting downgraded?) — if for no other reason than it could raise the cost of short- term financing which would hurt margins. Although the banks have protected depositors and other creditors by becoming more liquid, they have done so at the cost of longer-term profitability….more on Italy here….
Sure – Italy is not Portugal & contagion containment means a guarantee of EU bonds @ Par anywhere, under any circumstances (donʼt mention default). The BoE and the Federal Reserve will not default because they own and operate printing presses…the ECB, however, has a wishing well in operation. One can only hope Draghi isnʼt in a position wrt Monetary Policy where heʼs saying: – Trichet – you were only supposed to blow the bloody doors off!
A quick look at Italian bonds:
(click for sharper image)
(click for sharper image)
The Economissed is produced by Paul Wiggins head of Futures & Options at Market Securities in London.
Charts courtesy of Bloomberg
Related posts:
- The Economissed: …oh the youth of today – go get a haircut!
- The Economissed: Scream if you want to go slower
- The Economissed: What next for Greece?
- The Economissed: Thank God it’s Friday!
- The Economissed: Independence day celebrations
Link to this article: : http://www.goldmadesimplenews.com/markets/the-economissed-the-italian-job-4498/
Posted by Paul Wiggins on Jul 7 2011. Filed under Analysis, Markets.
You can follow any responses to this entry through the RSS 2.0.
You can leave a response or trackback to this entry
