27/10/2011
With the EU Debt Crisis Summit concluded, EU leaders have struck an accord to increase
the European Financial Stability Facility Fund (EFSF) to €1 trillion or $1.4 trillion
as well as for banks to write down their portion of the total €110 billion Greek
bonds that are on their balance sheets. This agreement has created new confidence
in the banking and financial system, with bank stocks up tremendously so far today.
Credit Agricole (ACA) is up 15%, BNP Paribas (BNP) up 13%, and Deutsche Bank (DB)
is up 10%.
An excerpt from a Bloomberg article this morning regarding banks states: “Europe
also struck a bank-recapitalization accord, setting a June 30, 2012, deadline for
lenders to reach core capital reserves of 9 percent after writing down their sovereign-debt
holdings…the European Banking Authority estimated banks’ capital needs at 106 billion
euros, with Spanish banks requiring 26.2 billion euros and Italian banks 14.8 billion
euros. It gave them until Dec. 25 to submit money-raising plans to national supervisors.
Banks that fail to raise enough capital on the markets will first tap national governments,
falling back on the EFSF rescue fund only as a last resort.” You can ascertain that
the EFSF has at least 10X more funding available than the combined 50% writedown
of total Greek debt of which banks own a relatively small proportion, and the bank
capital shortfalls estimated by the EBA.
This will affect the Pantera IGS Fund positively, with bank EMTN issuances expected
to increase because of demand for relative value versus hi-grade corporates, treasuries
and Eurobonds. The spreads on bank bonds should come in dramatically against the
government benchmarks, because of more buying demand and bank debt refinancings into
lower rates converging, meaning that trading volumes in EMTNs should immediately
increase to record issuance amounts over the next year. The Pantera IGS Fund is
poised to take part in these volumes of new-issue bank EMTNs for immediate profits
for investors, and total returns could be much more than forecasted previously.
