June 2012: key market events.

June 29, 2012

Europe summit surprises with bold moves. After 18 disappointing summits since the start of the debt crisis, Europe’s leaders appeared on Friday to have finally come up with quick fixes and long-term plans that show they are serious about restoring confidence in their currency union.

The leaders of the 17 countries that use the euro agreed to:

-Pump money from two European bailout funds directly into troubled European banks later this year, rather than make loans to governments to bail out the banks. The move rescues banks without putting strapped countries deeper in debt.

-Use bailout money “in a flexible and efficient manner to stabilize” European government bond markets. That suggests that money will be used to buy government bonds, which should ease the pressure on countries like Italy and Spain.

-Let “virtuous” countries tap European rescue funds directly without submitting to stringent bailout programs.

-Tie their budgets, currency and governments ever tighter in a vast new economic union down the line.

Most of the measures approved in the Brussels summit will take months to come into force. The $634 billion firepower of the EU’s future permanent rescue fund, the European Stability Mechanism, or ESM, may not be enough – Italy alone has outstanding debt of 2.4 trillion euros.



Jun 25, 2012

Cyprus sought a financial lifeline from the euro area’s firewall funds, becoming the fifth of the euro’s 17 member states to request a bailout.

The request will be limited to support for Cypriot banks, which need less than 6 billion euros ($7.5 billion), in hopes of securing aid with fewer conditions than a full-fledged economic rescue package, according to a person familiar with the bailout talks. The government still believes it has a chance to get a loan from China or Russia, which it might use to improve its bargaining position, the person said, declining to be identified because the talks are confidential.

Cyprus, which takes over the European Union’s rotating presidency on July 1, follows Greece, Ireland, Portugal and Spain in seeking help to return to financial health. The third- smallest euro economy has been hurt by losses from Greece’s recession and debt restructuring.

Cyprus has informed European authorities of its decision to submit a request for aid from the European Financial Stability Facility and its permanent successor, the European Stability Mechanism, which is due to come online July 9.

Fitch Ratings Co. today downgraded Cyprus to below investment grade, cutting it to BB+ from BBB- as the country negotiates international aid for its troubled banks.



June 25, 2012

Spain formally requested a rescue loan of up to 100 billion euros ($125 billion) from its eurozone partners in a letter released Monday.

No new figures were included in the letter, after reports by independent consultants last week said stricken Spanish banks could need up to 62 billion euros to survive a severe, three-year financial slump.

The aim was to finalize a memorandum of understanding in time for it to be discussed at a July 9 meeting of the Eurogroup, which groups the 17 eurozone finance and economy ministers.

Spain’s economy minister confirmed in the letter that the money would be funnelled to needy banks through the state-backed Fund for Orderly Bank Restructuring (FROB).

On June 10, 2012 Euro zone finance ministers agreed on Saturday to lend Spain up to 100 billion euros ($125 billion) to shore up its teetering banks and Madrid said it would specify precisely how much it needs once independent audits report in just over a week.




June 25, 2012

Moody’s Investors Service has today downgraded by one to four notches the long-term debt and deposit ratings for 28 Spanish banks and two issuer ratings.

Today’s actions follow the weakening of the Spanish government’s creditworthiness, as captured by Moody’s downgrade of Spain’s government bond ratings to Baa3 from A3 on 13 June 2012, and the initiation of a review for further downgrade.

Today’s actions reflect, to various degrees across these banks, two main drivers:

(i) Moody’s assessment of the reduced creditworthiness of the Spanish sovereign, which not only affects the government’s ability to support the banks, but also weighs on banks’ standalone credit profiles, and

(ii) Moody’s expectation that the banks’ exposures to commercial real estate (CRE) will likely cause higher losses, which might increase the likelihood that these banks will require external support.

The ratings of both Banco Santander and Santander Consumer Finance are one notch higher than the sovereign’s rating, due to the high degree of geographical diversification of their balance sheet and income sources, and a manageable level of direct exposure to Spanish sovereign debt relative to their Tier 1 capital, including under stress scenarios. All the rest of the affected banks’ standalone ratings are now at or below Spain’s Baa3 rating.

In addition, Moody’s has also downgraded (i) the ratings for senior subordinated debt and hybrid instruments of affected entities; (ii) all rated government-backed debt issuances from Spanish banks; and (iii) the long-term debt ratings of Instituto de Credito Oficial (ICO), which are based on an unconditional and irrevocable guarantee from the Spanish Government.



Jun. 21, 2012

Ratings agency Moody’s downgraded the long-term credit ratings of 15 major U.S., Canadian, and European banks today after markets in New York closed.

Below, a summary of the major ratings action taken.

Cut One Notch:

  • HSBC downgraded to Aa3 from Aa2
  • Lloyds TSB downgraded to A2 from A1
  • RBS downgraded to Baa1 from A3
  • Societe Generale downgraded to A2 from A1

Cut Two Notches:

Cut Three Notches:

“All of the banks affected by today’s actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities”, says Moody’s Global Banking Managing Director Greg Bauer. “However, they also engage in other, often market leading business activities that are central to Moody’s assessment of their credit profiles. These activities can provide important ‘shock absorbers’ that mitigate the potential volatility of capital markets operations, but they also present unique risks and challenges.”

Jun 20, 2012

Fed Expands Operation Twist By $267 Billion Through 2012.

The central bank will prolong the program through the end of the year, selling $267 billion of shorter-term securities and buying the same amount of longer-term debt in a bid to reduce borrowing costs and spur the economy.

Policy makers now see 1.9 percent to 2.4 percent growth in 2012, down from their April forecast of 2.4 percent to 2.9 percent. The unemployment rate will end the year at 8 percent to 8.2 percent, up from 7.8 percent to 8 percent in April.

Unemployment will end 2014 at 7 percent to 7.7 percent, up from a 6.7 percent to 7.4 percent in April, according to their so-called central tendency estimates, which exclude the three highest and three lowest forecasts.



June 20, 2012

Greece has a new government, ending weeks of uncertainty in the country. New Democracy leader Antonis Samaras was sworn in as prime minister on Wednesday. But he could have formed his coalition with PASOK and the Democratic Left already after the first election in May.

The success of the negotiations marks the end of weeks of uncertainty for the country and the rest of Europe, where leaders had feared that the left-wing Syriza alliance might win the election, causing the debt crisis to escalate and forcing Greece to leave the euro zone. For now at least, that danger appears to have been averted. In contrast to Syriza, all three parties in the new government broadly support Greece’s bailout deal with the European Union and International Monetary Fund (IMF).





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