Global lenders face 'killer losses' on Greek debt

The euro tumbled to a four-month low and European stock markets dropped as political leaders and economists warned that the next round of elections called in Athens amounted to a vote on Greek membership of the euro

“What’s at stake isn’t just the next Greek government,” said Guido Westerwelle, Germany’s foreign minister. “What’s at stake is the Greek people’s commitment to Europe and the euro.”

“A second vote means Greece is edging closer to the point where it’s inevitable they have to exit the euro,” Fredrik Erixon, head of the European Centre for International

Political Economy in Brussels, said. “No other course of events is now likely.”

As the Greek president, Karolos Papoulias, admitted defeat on coalition talks, Alexis Tsipras, leader of the radical Left-wing Syriza party which is leading the Greek polls, said he couldn’t “guarantee” the country would stay in the euro.

“We ask that our country remain in the euro without the catastrophic policy of austerity and we have the solidarity of Europe,” he said. “I can’t guarantee that the euro area itself and the euro will be united and exist.”

French President François Hollande and German Chancellor Angela Merkel, speaking together for the first time on the day of President Hollande’s inauguration, said they wanted Greece in the euro but stressed that it had to stick to the agreed austerity.

However, they hinted at other compromises. President Hollande confirmed he would seek to “renegotiate” the region’s fiscal pact to boost growth – saying that everything from eurobonds, funding, and competitiveness should be considered.

“We have to allow Greece to find solutions [...] everything has to be examined,” he said. “But at the same time, promises made must be held.”

Chancellor Merkel said their discussion had revealed “differing points of view”, but she also softened her tone, saying: “We want to do whatever we can do to help Greece structurally, with growth, in terms of organisation.”

Global financial institutions have a €422bn (£335.8bn) exposure to Greek debt, including state, household and corporate debt, according to the latest figures from the International Monetary Fund.

Yesterday the IESEG School of Management said the total losses could reach €66.4bn for France and €89.8bn for Germany. “Assuming that the new national currency would depreciate by 50pc against the euro, which is realistic, the losses for French banks would reach €19.8bn. They would reach €4.5bn for German banks,” it said.

The Institute of International Finance has estimated that the global cost of a Greek exit could hit €1trillion. When Argentina defaulted in 2001, foreign debtors lost around 70pc of their investments.

The Eurostoxx 600 fell 0.7pc to a year-low; Germany’s Dax dropped 0.8pc; Italy’s MIB fell 5.6pc and Spain’s Ibex was down 1.6pc. In London the FTSE? 100 slid 0.5pc. The yield on Italy’s benchmark 10-year bonds almost entered the 6pc danger zone; Spain remained high at 6.3pc.

As experts called for the IMF and other international bodies to intervene, IMF managing director Christine Lagarde told French television she was “technically prepared for anything”. At the finance ministers’ meeting in Brussels, Germany’s Wolfgang Schaeuble warned that Greeks had to accept the terms of their bail-out or staying in the euro “isn’t possible”.

View the original article here

JP Morgan faces FBI investigation over losses

The FBI and the US Department of Justice are examining whether there was any criminal wrongdoing in losses that have damaged the reputation that JP Morgan and Mr Dimon have built for risk management.

America's largest bank by assets has been battling to contain the fallout from the losses, which Mr Dimon described as "self-inflicted".

Yesterday, at the bank's annual shareholder meeting in Tampa, Florida, the banker admitted: "It should never have happened. I can't justify it."

The 56 year-old, one of the most powerful bankers on Wall Street, said he would consider clawing back the bonuses of any executives found to be responsible.

The losses have already cost Ina Drew, the head of the bank's chief investment office, her job and more are expected to leave the bank.

Mr Dimon yesterday refused to say how long its own internal investigation will take, but said the bank would "do the right thing".

In a further blow to Mr Dimon, whom President Barack Obama once described as his "favourite banker", 40pc of JP Morgan's shareholders voted to split his dual role as chairman and chief executive.

The crisis is the biggest that Mr Dimon has faced since shepherding JP Morgan through the financial crisis. Just a month ago, he dismissed reports about large trades the bank was making in an obscure corner of the derivatives market as nothing more than a "tempest in a teapot". Yesterday, he promised shareholders that "we will do the right thing" in investigating the losses.

But there was little sign of the controversy abating yesterday. John Liu, who runs New York City's pension fund, yesterday joined the call for bonuses of those executives responsible for the losses to be taken back.

The disclosure of the losses in the credit derivatives market has reignited the debate in the US over whether more regulation is needed to ensure the safety and soundness of the financial system.

Mr Dimon has been one of the most outspoken critics of the wave of regulation since the financial crisis, but insisted to shareholders that he was in favour of "sound and strong" regulation.

JP Morgan, which employs thousands of people in the City of London, has warned that the $2bn losses could deepen over the course of the year.

While some shareholders at the Florida AGM offered support to Mr Dimon, others were alarmed and baffled at the scale of the losses that the bank said it ran up in six weeks. "I'd like to have a clearer sense of the risk that I'm taking when I invest in JP Morgan," said Eric Vlahov, a shareholder. "Right now you don't."

Although the proposal to appoint an independent chairman failed to win the support of the majority of shareholders, the size of the vote in favour may have surprised the bank's board.

Most votes are likely to have been submitted before the trading losses were disclosed last Thursday. However, 91.5pc of shareholders backed the pay of Mr Dimon, which totalled $23m last year.

View the original article here

Daily ETF Roundup: VXX Recovers As Market Tank, XLF Leads Losses

It seems that yesterday’s rumors of strong China GDP growth were merely that, rumors. GDP sank to 8.1%, the weakest in three years, causing stocks to erase Thursday’s bull run as volatility spiked yet again, marking one of the more active weeks in recent memory. The Dow lost over 130 points while the S&P surrendered nearly 1.3%, all of this coming even after Google, JP Morgan, and Wells Fargo surpassed earnings expectations. While many investors had hoped for earnings season to be the main focus of the next few weeks, global issues concerning the euro debt crisis and now China’s lagging growth is creating a major cause for concern [see also Doomsday Special: 7 Hard Asset Investments You Can Hold in Your Hand].

Gold was one of the hardest hit assets on the day, as it sank 25 points, creating a major opportunity for gold bugs around the world. Crude oil also suffered during the week-ending session, as a barrel of crude saw its price dip by 77 cents. Crude has been stuck in a range-bound rut for several weeks now, leading to a fair amount of speculation as to where the commodity will be headed next. With yet another unstable week to put in the books, Q2 is shaping up to fall well short of its predecessor and may crush investor optimism to boot. For now, we outline two of the most significant ETF movers on the day to keep traders up to date with all of the happenings around the financial world [see also Does GLD Really Hold Gold, Or is it a Scam?].

One of the biggest ETF winners came from none other than the S&P 500 VIX Short-Term Futures ETN (VXX), which sank by more than 8% yesterday. Today, however, this ETN was able to jump by about 5.4% as markets gave in to major selling pressures. Roughly 6% of the S&P 500 has reported earnings thus far, with over 75% of them being positive, but that has not been enough to overcome fears of European yields and a slowing global economy. VXX will continue to prey on markets for as long as instability lasts so keep an eye on this fund in the coming weeks as it can be a vital trading instrument.

 

One of the biggest ETF losers came from the Financial Select Sector SPDR (XLF), which sank by 2.3% on the day. XLF’s losses come as a frustrating result as JPM and WFC, both of whom beat the Street with their earnings, are among the top ten holdings of the fund. Still, the massive sell-off in this ETF was likely due to euro fears, as banks and the financial sector as a whole are easily spooked by news concerning debt issues. XLF traded 92 million shares on the day and has a year-to-date performance of approximately 17% [see also 4 Sector ETFs Up Over 20% YTD].

 

Disclosure: No positions at time of writing.

Click here to read the original article on ETFdb.com.

View the original article here