Can someone please explain the eurodeal?

Mrs_Bones

Generali wrote: »

It's not a case of making up losses in many cases. For example, BNP Paribas made the fat end of EUR8,000,000,000 in profit last year but have been told to raise EUR2,100,000 in extra capital.

In that case, and many others, the funds need to be raised to add to bank reserves. It's an attempt to make the banking system less likely to fail.

The money can be raised from loads of different places but they all boil down to either borrowing against or selling assets.

How is any of this actually going to help the likes of Greece though? even if banks agree to a lost which does not seem to be certain yet, Greece will still owe much more than it can pay back and seems unlikely to be able to grow in order to start paying back debts. The bailouts to them are only really keeping them ticking over and paying the interest on what they owe, so how does any of this improve matters for the people of Greece in a practical way?

TruckerT

Generali wrote: »

BNP Paribas made the fat end of EUR8,000,000,000 in profit last year

To my untrained mind, 'BNP Paribas' sounds like a Spanish or a Portuguese Bank

But Spain and Portugal are two of the riskier areas in the eurozone, financially speaking

How can I be expected to understand what is going on here?

TruckerT

Generali

BNP Paribas is a French bank. BNP was the old state owned bank and Paribas is an old retail bank. They merged in the 1990s. The closest equivalent in the UK is Lloyds HBOS.

Partly these things are made complicated to stop you from understanding. Partly it's complicated because this is difficult stuff! It's like asking why you don't understand General Relativity or the early Christian Church schisms. It's because they're bloody hard! I struggle with this stuff and I'm interested, educated and informed in this area.

StevieJ

If say BNP Paribas has to take a 50% hit on its Greel debt, why has the share price gone up 17%, bizzarely the value of the company has probably increased today more than it will be writing off in debt.

gagahouse

StevieJ wrote: »

If say BNP Paribas has to take a 50% hit on its Greel debt, why has the share price gone up 17%, bizzarely the value of the company has probably increased today more than it will be writing off in debt.

That debt was trading around 40, they've just been offered 50 for it and took it.

Then, if they can't raise the 3.2bn they need there is the recap fund so they won't go bust because of Greek default. The shares had lost 50% and were priced as heading towards bankruptcy, that's changed for now so they rally.

TruckerT

gagahouse wrote: »

That debt was trading around 40, they've just been offered 50 for it and took it.

Then, if they can't raise the 3.2bn they need there is the recap fund so they won't go bust because of Greek default. The shares had lost 50% and were priced as heading towards bankruptcy, that's changed for now so they rally.

What does 'trading around 40' and 'offered 50' mean?

What is the recap fund?

Where does the figure of 3.2bn come from (it seems small)

TruckerT

Mr_Mumble

I know the French banks generally have short terms to maturity on their Greek bonds (typically < 5 years) while the German banks are known to have a longer maturity profile (averaging 10 years iirc). Since there's supposed to be 30 billion euros in the pot for paying out creditors who don't take the offer and those who don't take the offer are more likely to be on the short end of the yield curve its no surprise the biggest equity winners today were the French banks (surprising how the French always seem to win these EU deals - whatever happened to the CAP reform Tony Blair promised the UK taxpayer?!)

gagahouse wrote: »

That debt was trading around 40,

Depends on the duration of the particular bond.

they've just been offered 50 for it and took it.

15 in cash and 35 in 30 year Greek bonds is the likely offer. The market value of the newly issued Greek bonds will not be the same as the nominal!

Mr_Mumble

TruckerT wrote: »

What does 'trading around 40' and 'offered 50' mean?

The principal value of a single bond is usually 100 euros/pounds/dollars. Most recently issued sovereign bonds trade around 100 because creditors expect the debtor government to pay back the principal on maturity and keep up with interest payments.

The expectations of a Greek default, i.e. not paying either the bond's interest payments or principal in full, had risen to such an extent that Greek bonds had fallen in value from around 100 euros per bond to 40. By offering 50 Euros per bond gagahouse is saying the creditors are being offered more than the current market rate (I disagree with this, its around the market rate imho but I still think most creditors would do well with this deal because it is still technically voluntary and many shorter-term lenders could get paid back the full 100 plus coupon payments).

Where does the figure of 3.2bn come from (it seems small)

Its based on market estimates extrapolated from the bank's financial disclosures. 3.2bn Euros of Tier 1 capital (usually equity) allows for 35.6bn Euros of risk weighted assets based on the 9% tier 1 capital ratio that is to be set by European regulators (calculation is simply: 3.2 / 0.09 = 35.5555)

TruckerT

Mr_Mumble wrote: »

Its based on market estimates extrapolated from the bank's financial disclosures. 3.2bn Euros of Tier 1 capital (usually equity) allows for 35.6bn Euros of risk weighted assets based on the 9% tier 1 capital ratio that is to be set by European regulators (calculation is simply: 3.2 / 0.09 = 35.5555)

How much does that cost me on a weekly basis?

TruckerT

grizzly1911

howee wrote: »

Who are they bleeding right now? They got bailed out by the gov but state owning a bank is temporary thing the banks will be sold off and I would expect a decent return (provided there is not a labour gov in at the time DOH!!)

Joe public needs to stop blaming banks and realise borrowing money we didn't have to pay for things we didn't need got us here. It's simply pay back time.

HM Gov needs to realise you have to have more money coming in via taxes to pay for the public purse, you can't keep borrowing

and the unions need to realise the public sector has to be smaller.

No guarantee the State Banks will be sold off for a decent return. Certainly not in the short term.

The Banks are largely at fault for chasing profit and taking unnecessary risks. Allowing credit too freely and using complex tools to bundle up poor debt and pass it off as good to each other. They overlent their capital too many times.

Accept the Government needs positive cashflow but raising taxes in themselves won't do much good if there isn't anything to tax. What we need is a greater volume of tax paid on growing earnings. We need a positive flow of trade into this country, from a mixed portfolio of exports.

For all too many years we have lost our manufacturing base and we are predominately a "service" (parasite) economy. Yes we do buy in large amounts from China, and we have sold off our utilities to foreign investors so less funds are available in the UK to give the multiplier effect needed, from the import revenue, as they go straight back out again.

Whilst the public sector is a drain and has become bloated and unnecessary in parts - that is an aggrivated symptom and not the cause of our illness. We have a growing population so it isn't surprising that the public sector may need to grow in proportion.