Friday 23 July 2010

Seven EU banks fail stress tests

According to the BBC:

"They include five Spanish banks - Diada, Espiga, Bianca Civica, Unnim and Cajasur.

The other two were Germany's Hypo Real Estate and Greece's ATEBank."

Here´s what the European Commission has to say about it, and here´s what the CEBS (Committee of European Banking Supervisors) has to say about it.

These stress tests and the transparency they endow the banking industry with are relevant to the extent that they decrease asymmetries of information, and the ensuing uncertainties about the quality of the EU´s banks´ balance sheets. They should thus revive investor confidence in EU banks, and the industry, if as expected they are, overall, good.

For those banks who fail to pass these tests, recapitalization awaits; either through a private take-over(Germany and Greece?) or through public lending (Spain?).

Friday 9 July 2010

Understanding the financial crisis through the UK's LIBOR

Inspired by the previous post, here's a similar analysis of the Leading interbank offered rates for the pound. I've been compiling some data to do the same for Euribor rates, but it's taking me a while. The source for the events is the BBC.

Tuesday 6 July 2010

No contagion: The irrelevance of greek debt restructure to healthcare service suppliers

John Dizard of the FT warns us that "Greece is restructuring debt". Now this is misleading but it is well written. It is misleading, because Greece is not restructuring all of its debt, only the debt of the healthcare system. It's a well written title because the author only refers to debt, which implies some debt, not all. It's beautiful when the media uses semantics to say one thing while subliminarly implying its hyperbole. Anyway, this news seems to have been picked up by Yves Smith at naked capitalism who has some further comments on it. Moreover this restructuring is happening despite it's fantastic performance, according to the IMF (via Tony Barber of the FT). Is this horrible? Well its not good, particularly if you are the relevant pharma companies. However I would guess that this is debt that Greece can afford to restructure and that the rest of the EU can afford to let it restructure. I would suppose that Greece's small size makes it a fairly small customer and thus it would have little effect on the world market for health care products. Alternatively, and because I know nothing of the market and regulations of healthcare in the EU, other than what this article tells me, if healthcare is a protected industry then whatever economic hailments may befal the pharma companies will be limited to such Greek companies. In conclusion, there cannot be much or any contagion from this restructuring. This reality of healthcare suppliers is clearly opposed to the contagion that would happen if central government would default to banks . This implies that Greece can restructure all debt that will not affect its economy to a large extent or spread to the economy of its neighbours. As a result, I would expect markets to not react much to this recent revelation as according to the logic I have just outlined central government's agencies' bonds are not the same as central government's bonds. Therefore the restructuring of one should not imply the restructuring of the other. At the same time, according to John Dizard "What the pharmas do [when payment stops or slows] is supply only the basics like penicillin or insulin. At the end they stop doing even that." Now as you'll see from his original post this was said in the context of the Soviet Union, so I don't think that that insight is transferable to Greece, and that we won't see patients dying because the state cannot pay for their medicines. Naked capitalism has some very "inspired" comment on what would happen if this were to happen in Greece... But it seems rather inappropriate to compare Greece to the USSR.