Blain's Morning Porridge - The first major COCO crash, and the Game of UK Politics..
Blain’s Morning Porridge – June 7th 2017
“If you think this has a happy ending, you haven’t been paying attention….”
There is a rule in Financial Institutions that any bank that calls itself “popular” generally isn’t. This was proved last night. But, congratulations if you were a holder of Spain’s Banco Popular’s Senior Debt – they did a Zebedee “boing!” on the basis last night’s last minute Santander rescue makes the bonds money good.
Bad news for the Equity and COCO AT1 holders – who have the distinction of holding the first major bank capital bonds to be bailed-in/wiped out under EU regulations. Banco Popular senior debt is 12 points higher this morning. The AT1 perps are trading at 5%, down 50 points!!,and even that price looks optimistic. Ahah. We’ve not seen crashes like that since 2008.
Popular has been desperately seeking a rescue for the last few weeks, but everyone looked the other way. So last night the ECB triggered the “Single Resolution Mechanism” when it determined the Popular’s liquidity crisis was such its equity would be unable to cover debts or other liabilities.
The Single Resolution Board agreed the sale of Popular for One Euro to Santander. Santander will launch a Euro 7 bln rights issue to recapitalise the bank, but that’s not a massive ask for Popular’s business. At one time Pop was the top Spanish bank – a great SME platform, strong retail business and solid management. Now it’s just another name to be restructured and synergised (is that a word?) into the maw of Santander.
Meanwhile, what do last night’s events in Spain say for the number of unresolved Italian banks scrabbling to recapitalise and find relevance? Essentially they face the same problem as Banco Popular – no one is interested to recapitalise them. Italy hope the regulators will approve further state aid and bond sales by Banco Populare di Vicenza (See – another Popular bank about as loved as rabies) and Veneto Banco – but they will require state guarantees – which is a probable No No!
What happens to the Italian banks is very relevant to Italian politics – for years Italian banks canabilised their own depositor bases selling retail savers “savings bonds” which were actually deeply subordinated debt. Let’s wait and and see how this one plays out..
Meanwhile, back in the Land of Not Kansas..
Tomorrow morning I shall leap out of bed full of anticipation! Ah! The joy of exercising my democratic right to kick the Tories out… (or probably not in this case, cos that would make as much sense as buying an Italian bank…)
Our London flat is in Tower Hamlets, so I suppose I should vote early and often. (It is, allegedly, the most corrupt constituency in the UK.) Of course – for the benefit of the Electoral Fraud Commission - I shall not. I am saving my vote for the afternoon when I go back home to Hamble to vote in the critical Eastleigh Tory/Liberal marginal. (Am willing to supply either candidate with my bank account details.)
About the only thing I’m certain of is Jeremy Corbyn won’t win this election. But, neither will Theresa May – she might even get a triple digit majority, but she’s busted. The internal politics of the Conservatives makes Game of Thrones look like something out of CeeBeebies (preschool Tellytubbesque viewing for 3 yr olds). Apres Theresa le deluge? Boris, or Amber, or worse? (Is there worse?)
The key determinant of tomorrow’s UK general election is going to be turnout. Just about every commentator, instant election expert and prognosticator now agrees the polls are wrong and have been counting the wrong eggs and seeing invisible chickens. One major aspect is over-emphasising the young person vote: they just don’t bother to vote in the same numbers as grown-ups, and they are more likely to support Labour. Moreover, the youth voters are more likely to be denizens of the inner cities, which tend to be Labour seats anyway. The maths is simple – 6 million young people may vote Labour, but if they are all in Central London.. big deal.
The conventional wisdom is a low turnout favours the Conservatives – their older, middle class and affluent voter base take their voting responsibilities to heart. But, weather will also be important – forecast across much of England and Scotland for Thursday is cold and raining, which will likely scare off the unwashed socialist masses from trudging to the polling stations, while Tory grandees will ferry their voters to the ballot boxes in Rollers and Bentleys. Meanwhile, it will be a decent day in the Tory heartlands of the Home Counties, but also in that seventh circle of Socialist Ferment – London.
And don’t underestimate the significance of postal votes – which have already been cast. They now make up 20% of the vote – and are more likely to have missed the growing “disappointment” with Theresa May’s version of firm leadership. And of course UKIP voters aren’t all complete idiots and some of them will have figured out they are just Tories under a different guise.
I’ll be watching what happens in Scotland – anticipating Nicola Krankie takes a neverendum spanking and losing 10 seats to the Tories, Labour and even the Liberals. That should shut her up for at least a few months till she starts havering about “Freeeeeeeedom” again..
But the truth is, I don’t have a clue about tomorrow. Pretty certain the Tories will win, but Corbyn has proved far better than we initially credited him.
I reckon whatever the bookies are saying is as good a bet as anything. And they are saying Tories to win with a 106 majority..
Let’s see what tomorrow brings..
Fastnet Charity: http://www.sail4cancer.org/fastnet-2017-bill-blain
Bill Blain