Germany's 'desperate' Short Ban Triggers Capital Flight To Switzerland

[interestrateripoff]

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7742355/Germanys-desperate-short-ban-triggers-capital-flight-to-Switzerland.html

A year ago, Germany's financial regulator BaFin warned that the toxic debts of the country's banks would blow up "like a grenade" once hidden losses from the credit crisis caught up with them.

An internal memo at the time showed that BaFin feared write-offs might top €800bn (£688bn), twice the reserves of Germany's financial institutions. Nobody paid much attention. But the regulator's shock move on Tuesday night to stop short trading on banks, insurers, eurozone bonds – as well as a ban credit default swaps (CDS) on sovereign debt – has left markets wondering whether the slow fuse on Germany's banking system has finally detonated.

BaFin spoke of "extraordinary volatility" and said CDS moves were jeopardising "the stability of the financial system as a whole". It is unsettling that the BaFin should opt for such drastic measures a week after EU leaders thought they had overawed markets with a €750bn rescue package and direct purchases of Greek, Portuguese and Spanish debt by the European Central Bank. BaFin's heavy-handed move seems to proclaim that the rescue has failed.

"The market is left asking what skeletons are lurking in the cupboard," said Marc Ostwald from Monument Securities. The short ban follows a report by RBC Capital Markets that circulated widely in the City accusing German banks of failing to come clean on 75pc of their €45bn exposure to Greek debt.

German lenders have the lowest risk-weighted capital ratios in the world after Japan. They were slow to rebuild safety cushions after the sub-prime crisis, and now face a second set of losses on Club Med holdings. Reporting rules have let Landesbanken delay write-downs, turning them into Europe's "zombie" banks.

Even so, nothing adds up in this BaFin episode. Germany acted alone, prompting a tart rebuke from French finance minister Christine Lagarde. "It seems to me that one should at least seek the advice of the other member states concerned by this measure," she said. Brussels was not notified. The deep rift between Berlin and Paris has been exposed again, leaving it painfully clear the European Montary Union still lacks the fiscal and governing machinery of a viable currency union.

Far from stabilising markets, BaFin's move set off a nasty sell-off in credit markets. Markit's iTraxx Crossover index – measuring risk in mid-level corporate bonds – jumped 57 basis points to 586. Markit said BaFin had caused liquidity to dry up in "febrile conditions". The Libor-OIS spread watched for signs of strain in interbank lending widened further.

If the purpose of BaFin's action was to drive wolfpack "speculators" off Greece's back, it failed. Yields on 10-year Greek bonds rose 37 basis points to 7.918pc. What it showed is that CDS contracts barely matter. The issue is whether "real money" investors such as the Chinese central bank are willing to buy Greek and Portuguese debt.

The short ban set off instant capital flight to Switzerland. BNP Paribas said €9.5bn flowed into Swiss franc deposits in a matter of hours on Wednesday morning.

The Swiss central bank intervened to hold down the franc. This caused the euro to shoot back up against the US dollar after an early plunge. The euro had already bounced off "make-or-break" technical support at $1.2135, the 50pc "retracement" of its entire rise since 2000, but any rally is likely to be short-lived.

So are German banks slowly becoming zombies?

Still at least it's contained....

The zombie recovery?

[indirectapproach]

"The Swiss central bank intervened to hold down the franc. This caused the euro to shoot back up against the US dollar after an early plunge. The euro had already bounced off "make-or-break" technical support at $1.2135, the 50pc "retracement" of its entire rise since 2000, but any rally is likely to be short-lived."

Ah, so that's what it was.

[interestrateripoff]

"The Swiss central bank intervened to hold down the franc. This caused the euro to shoot back up against the US dollar after an early plunge. The euro had already bounced off "make-or-break" technical support at $1.2135, the 50pc "retracement" of its entire rise since 2000, but any rally is likely to be short-lived."

Ah, so that's what it was.

The downward trend it would appear will continue.

[interestrateripoff]

http://www.timesonline.co.uk/tol/news/world/europe/article7131340.ece

Shocked European ministers are preparing for emergency talks to shore up the euro after markets fell in reaction to panic measures in Germany.

Angela Merkel stunned EU capitals by warning that the euro was in danger and triggered fears of a fresh financial meltdown by announcing a ban on risky trading practices by speculators. The German Chancellor’s actions opened up new cracks in the single currency, drawing sharp criticism from France and prompting Brussels to issue an appeal for unity.

Shares in London plunged by nearly 3 per cent, with similar falls in Paris, Berlin and Madrid. The euro plummeted to a new low against the dollar before making a slight recovery.

European finance ministers, who have just hammered out a massive rescue plan for Greece, will hear controversial calls from Germany at a meeting tomorrow for changes to the Lisbon treaty to give Brussels powers to co-ordinate national budgets.

Yet more emergency talks. Pretty soon these emergency talks will become normal as they are happening all the time.

[Laura]

Tim Congdon from International Monetary Research said deposit data from the ECB shows that there was a "major run" on Club Med banks in the second week of May. Some €56bn of interbank lending facilities were withdrawn, probably as citizens in the South switched funds to banks in the eurozone core. Bank reliance on the ECB lending window jumped by €103bn – or 22pc – in a week.

"It was extreme and very sudden, probably on Friday afternoon. The eurozone was undoubtedly in peril," he said.

The question raised by BaFin is whether underlying damage to the eurozone banking system runs even deeper than feared

I did my bit & i'm proud of it

I didn't have much left in Euros but still decided to remove all except for day-to-day needs.

I was impressed, my Portuguese bank was really fast with the transfer of the digits to 'elsewhere'

[Bloo Loo]

http://www.timesonli...icle7131340.ece

Yet more emergency talks. Pretty soon these emergency talks will become normal as they are happening all the time.

down is not allowed. must prevent down at all costs. Hold until relieved. Hold until relieved. ( guess whos going to Normandy next week!)

[interestrateripoff]

Is this the start of the capital-less recovery?

[fluffy666]

So are German banks slowly becoming zombies?

Still at least it's contained....

The zombie recovery?

To be honest, all I hear is the wailing and gnashing of teeth from gamblers having their chips taken away.

Ban naked shorting, regulate CDS as insurance, put in a tobin tax (should deal with HF trading).. there could come a point where banks have to do things like assess investment risk and invest capital in productive enterprise. No wonder the propaganda machine is in full voice.

[Laura]

To be honest, all I hear is the wailing and gnashing of teeth from gamblers having their chips taken away.

Ban naked shorting, regulate CDS as insurance, put in a tobin tax (should deal with HF trading).. there could come a point where banks have to do things like assess investment risk and invest capital in productive enterprise. No wonder the propaganda machine is in full voice.

Cue gasp/horror expression from senior banker 'George Parr' aka John Bird,

[moneyscam]

To be honest, all I hear is the wailing and gnashing of teeth from gamblers having their chips taken away.

Ban naked shorting, regulate CDS as insurance, put in a tobin tax (should deal with HF trading).. there could come a point where banks have to do things like assess investment risk and invest capital in productive enterprise. No wonder the propaganda machine is in full voice.

http://ftalphaville.ft.com/blog/2010/05/20/236901/take-hdat-greek-politicians/?updatedcontent=1

. . . after the elections on 10.5.2009, the Bank of Greece (BoG) has changed its procedures for settling trade . . . on Greek bonds . . .

As a clearly defined time limit is for transactions conducted through HDAT and cleared through the “System” a period of three (3) working days (T +3). For transactions executed on other platforms, out-of stock (OTC) the period may be different . . .

Immediately after elections BoG decided to adopt the procedure of automatic re-import (recycling) non-deductible (failed) transaction fee for ten (10) days.

That is to say the Bank of Greece has decided to extend the period of completion of transactions in securities of the Greek government, by introducing rules for bilateral negotiations (OTC) on a regulated market, such as HDAT . . .

On 12/10/2009, at the request of the Greek banks, BoG also decide not to penalize those who could not deliver the bonds after the extension of ten (10) days . . .

The other side of that coin, if we are going to place blame let's at least be fair about it, govt's and regulators enabled a lot of this.

[The Generation Game]

European finance ministers, who have just hammered out a massive rescue plan for Greece, will hear controversial calls from Germany at a meeting tomorrow for changes to the Lisbon treaty to give Brussels powers to co-ordinate national budgets.

EU looking to obtain control of Sterling?

[fluffy666]

The other side of that coin, if we are going to place blame let's at least be fair about it, govt's and regulators enabled a lot of this.

To be honest, I'm disgusted with the whole lot.. Politicians for believing anything they get told by bankers over a very nice lunch, bankers for strip mining the entire economy for a quick buck, th media for failing to ask any serious questions..

The best you can say is that some of them actually believed that financial deregulation would be good for the economy. The fact that we now see ex-labour ministers walking into city boardrooms says it all really.

[piece of paper]

I did my bit & i'm proud of it

I didn't have much left in Euros but still decided to remove all except for day-to-day needs.

I was impressed, my Portuguese bank was really fast with the transfer of the digits to 'elsewhere'

Sometimes you confuse me. You move to a location where you can live in a simple, peasant, horse and cart culture. How do show your gratitude to your hosts? You conspire to destroy their economy and put them back to a simple, peasant horse and cart culture.

p-o-p

Edited May 20, 2010 by piece of paper

[Number79]

The downward trend it would appear will continue.

I am expecting to see dollar parity so yes, a fair way to go yet.

[lowrentyieldmakessense(honest!)]

http://www.zerohedge.com/article/todays-unprecedented-swiss-bank-intervention-driven-massive-capital-flight-germany-switzerla

ZH's take

'As for talk of disintegration, we know that Europe was hours away from implosion as recently as Friday. '

yep Renfield gets it

by Renfield

on Wed, 05/19/2010 - 18:40

#361862

I agree.

WTF are these idiots trying to hold onto? What do they think they can avoid? The global financial system has been falling apart for years. The collapse has been accelerating for the last couple of years, but there is no 'stabilising' it. All that 'stability' - bailouts, shadow banking system, increasingly complex financial instruments, too-big-to-fail - was just making things worse.

Merkel has a spine after all, as it turns out - altho she shouldn't have ever softened on the bailout pap. Should have said No and called Sarkozy's bluff, should have refused to consider it in the first place. The EUR would have taken its lumps earlier. Merkel has more backbone than any of our lapdog administration - she is the first to face reality.

Their ******ing 'bailout' was transparently unworkable from the start. Greece, Europe, and the rest of the western world is behaving like a desperate debtor trying to buy any time at any price. I'm not surprised at the blaming and weeping and carrying on by the cockroaches who are trying to kick the can down the road one last time, who are so close now to being made to hold the bag of their own debt. How dare Merkel refuse to pour her citizens' labour out like water so the banksters can party for another year.

I pity the peasants of Europe, though. Stupid or entitled as they may have been, they don't deserve the blaming and the pillaging they are getting from their guilty, complicit leaders.

There is a debtor's lineup happening. Europe, the 'resources' currencies, Japan, and at the end the US.

[ralphmalph]

http://ftalphaville.ft.com/blog/2010/05/20/237231/what-deutsche-bank-did-yesterday/

Also Deutsche Bank stopped trading Sov CDS in Frankfurt and started to do it in London.

I wonder what "The law of unintended consequences" is in German - FrauMerkelhasnotgotacclue perhaps?

Edited May 20, 2010 by ralphmalph

[interestrateripoff]

UK now according to zerohedge:

Pan-European Bank Run Is Now On: Capital Flight From UK To Switzerland, As GBPCHF Intervention Strikes Next

Excellent.

Why are the overleveraged Swiss considered safe?

[fluffy666]

Excellent.

Why are the overleveraged Swiss considered safe?

You are assuming that sanity has a look-in on the current situation.

[D.C.]

Things not looking good over in the states either.

Try this heat map, red is bad mkay?

http://finviz.com/map.ashx?t=sec

[OnlyMe]

I think all these "banning naked shorting" is causing currency/stockmarket collapse is ********.

German gold dealers running out of gold, Germans go across the border and buy gold in Switzerland, basically having lost faith in their leader's ability/willingness to preserve the value of the Euromarks they already hold.

Also why is sterling down a percent against the dollar and 0.7% against the Euro if you can still short away al will from London.

[The Eagle]

Their governement is pretty safe with low debt, especially as I read somewhere (sorry can't remember where) that they intend to let any banks that fail go bust. Not sure about their big banks though ...

(FWIW, I'm no expert on this sort of thing.)

Switzerland still has a fairly little known (outside Switzerland) safehaven: Postfinance, the bank of the swiss post, 100% state owned, all deposits are fully guaranteed, sort of like NS&I, but Postfinace also provides current accounts.

I wouldn't trust UBS or CS with any of my money, but Postfinance is as safe as it gets (unless fiat money collapses completely...)

[moneyscam]

UK now according to zerohedge:

Pan-European Bank Run Is Now On: Capital Flight From UK To Switzerland, As GBPCHF Intervention Strikes Next

Normally ZH post good accurate reports but have to take issue with this one, seems a bit conjecture here rather than hard evidence.

A quick look at the trading pattern of the GBPCHF shows that it is now UK depositors who are panicking and shifting their money to unnamed (not so much anymore) Zurich bank vaults. The result: a 300 pip move in the GBPCHF as the SNB rushes to put out this particular capital flight fire. Too bad it only succeeded for about 12 hours. The run on the bank (to another bank) in Europe is now on.

The 300 pip was yesterday when the SNB intervened and sold CHF against EUR. This weakened CHF against the other crosses due to arbitrage hence the 300 pip move in GBPCHF. The article implies the 300 pip move was due to UK money flooding into CHF and that the SNB intervened to stem this tide which is cobblers basically.

Today's 150 pip downmove in GBPCHF so far can be attributed to the weakness in GBPUSD and relative strength of USDCHF.

So I believe their interpretation of moves in GBPCHF are wrong in their causality, I do however agree there will be many nervous UK investors eyeing places like Switzerland as potential safe havens in the next few months. A collapse of the Euro is not necessarily a one way bet for the Swissy though, the EU is by far their largest export market, pain in Euroland will be felt in Switzerland too.

[ParticleMan]

[CokeSnortingTory]

I like the way that all these people looking for a "safe haven" don't know the Swiss banks are loaded up with EUR 65 billion of Greek debt.

You'd think they'd do some basic research.

[ParticleMan]

You'd think they'd do some basic research.

I said it before but it's worth repeating.

Every time the SNB intervene (ie sell CHF), UBS' and CS(FB)'s balance sheets magically expand.

Edited May 20, 2010 by ParticleMan