The Greece debacle has (temporarily) been quietly shifted from the front page of both financial and popular news, it’s now left to the Greeks to cope with the impossible, inter-generational, insoluble financial burden their unelected technocrats have agreed to on their behalf. The indirect bank and bondholder bailout, that’s been agreed in order that Greece can pay the bondholders and banks back, has come into effect. Attention may now switch to other more ‘crunching’ issues as bank season reporting, (particularly focused on Europe), gets into full swing.
Whilst the mainstream media may amplify the bonuses issue there is an altogether much darker issue at play for European banks – profitability, and two banks who’ve reported results overnight and this morning have published disastrous figures.
Royal Bank of Scotland has announced that losses have widened to £2bn in 2011, whilst confirming it paid out £390m in bonuses to investment bankers. The UK taxpayer is currently sitting on £20bn of losses on its 82% stake, despite the 2% rise in the shares to 28p by 8.30am GMT.
France’s third largest bank, Credit Agricole, has revealed figures significantly worse than analyst expectations; it reported a greater than estimated loss in the fourth quarter after setting aside money at its Greek consumer banking network and writing down investments. The shares dropped after the net loss widened to 3.07 billion euros from a deficit of 328 million euros a year earlier. That missed analysts’ estimates for a 2.7 billion-euro loss.
Credit Agricole fell 4.2 percent, to 4.80 euros and was at 4.88 euros at 9:02 a.m. in Paris trading reducing the gain this year to 12 percent. BNP Paribas, France’s biggest bank, has risen 18 percent this year, Societe Generale, the second largest bank lender, has advanced 32 percent.
With the ECB considering the date at which it’ll unleash it’s next LTRO, (long term refinancing operation) it can’t come soon for some banks, particularly France’s three biggest who had (still have) massive exposure to the Greek situation. But they’re not alone in needing to repair their tattered balance sheets, the insatiable thirst Italian banks displayed for liquidity, in the first round LTRO, is likely to be repeated.
German Business Confidence Is Rising
The Munich-based Ifo institute has reported this morning that its business climate index, based on a survey of 7,000 executives, climbed to 109.6 from 108.3 in January. That’s the fourth straight gain and the highest reading since July. Economists predicted an increase to 108.8.
Germany’s Bundesbank said on Feb. 20 that the outlook for the economy has “improved perceptibly,” even though “risks relating to the sovereign-debt crisis remain.” The Bundesbank in December forecast growth will slow to 0.6 percent this year from 3 percent in 2011 before accelerating to 1.8 percent in 2013. Germany’s benchmark DAX share index has gained 16 percent this year, outperforming all its major European peers.
Market Overview
European equities have risen for the first time in three days whilst the euro strengthened after German business confidence climbed more than forecast. U.S. equity index futures and commodities gained.
The Stoxx Europe 600 Index climbed 0.3 percent at 9:10 a.m. in London. Standard & Poor’s 500 Index futures added 0.4 percent. Italian 10-year bond yields rose six basis points to 5.57 percent. The euro appreciated 0.5 percent to $1.3319. The Dollar Index, which tracks the U.S. currency against those of six trading partners, dropped 0.3 percent.
Market snapshot as of 10:20 am GMT (UK time)
Asia-Pacific markets experienced mixed results in the overnight early morning session, the Nikkei closed up 0.44%, the Hang Seng closed down 0.78% and the CSI closed up 0.34%. The ASX 200 closed down 0.16%. European bourse indices have enjoyed modest gains in the European session, the STOXX 50 is up 0.01%, the FTSE is up 0.34%, the CAC is up 0.14% and the DAX up 0.31%. The MIB is down 0.67% whilst the Athens exchange, the ASE is the leading rise amongst the European indices currently up 0.96%. ICE Brent crude is up $1.07 a barrel at $123.97, Comex gold is up $9.50 an ounce. The SPX equity index future is currently up 0.27%.
Commodity Basics
Iran produced 3.5 million barrels of oil a day in January, according to analysts’ estimates compiled by Bloomberg. Saudi Arabia, the biggest member in OPEC (the Organisation of Petroleum Exporting Countries), had output of 9.7 million barrels a day.
Brent crude rose to its highest level in nine months after German business confidence surpassed forecasts, increasing optimism that steps to resolve Europe’s debt crisis will be successful. Brent oil for April settlement was up 89 cents at $123.79 a barrel on the ICE Futures Europe exchange in London at 9:40 a.m. GMT. The European benchmark contract’s premium to New York-traded West Texas Intermediate was at $17.26. It reached a record of $27.88 on Oct. 14.
On the New York Mercantile Exchange, crude for April delivery was at $106.53, up 25 cents. The contract rose yesterday to $106.28, the highest close since May 4. New York futures have risen 3.2 percent this week on speculation that tensions with Iran over its nuclear program will threaten supplies. Prices have gained 8.6 percent in the past year.
Gold for immediate delivery gained 0.2 percent to $1,780.07 an ounce by 9:40 a.m. in London. It’s up 14 percent this year and reached a record $1,921.15 on Sept. 6.
Forex Spot-Lite
The euro strengthened versus the dollar and the yen after a German report showed business confidence rose more than economists forecast. The dollar dropped versus 13 of its 16 major counterparts. The 17-nation currency strengthened 0.5 percent to $1.3315 at 9:11 a.m. London time and climbed 0.3 percent to 106.74 yen.
