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JohannesBorgen

30 Oct, 11 tweets, 2 min read

An Italian drama could unfold in the next few weeks, with substantial consequences. And, again and again, it's about the (probably not) oldest bank in the world, Monte dei Paschi. What is it about? A quick thread

It all started to unfold when the former CEO & Chairman were convicted earlier this month for accounting fraud (related to the infamous Alexandria etc transactions, worth a thread on their own - btw check who was governor at the BoI back then).

The bank is not directly liable for the conviction of the former CEO & Chairman, but there are many litigations ongoing against Monte Paschi & some of them are related to the capital increases that happened back in the time.

The "litigation" section on Monte annual report is longer than the one in Deutsche Bank's !!!
So what was the consequence? Because of the decision, the bank had to reclassify some of the claims as "likely"... which, under IFRS rules, means some provisions!

How much are we talking about? Last July they said €10bn risk: €4.8bn threatened litigation, €2.1bn of probable loss, €1.7bn of "possible" loss and €1.4bn of "remote" loss.

So now all the talk is about a capital increase (1.5bn to 2.5bn) to cover that loss. But this will be VERY hard to swallow for the market. So what? State aid again? Precautionary recap?

This is where it gets very interesting. Under "normal" state aid rules, precautionary recap means more or less wiping out subordinated debtholders. Ouch. The bonds would be worth 0. EXCEPT we've had the Covid communication from the EC back in March

This says that if a bank needs a recap state aid because of Covid then burden-sharing isn't necessary. This was a very strong support for bank subordinated bonds.
So how will it play out? Will the EC pretend to ignore the truth and say that the recap is because of Covid?

Or play hardball and say that obviously, this is all because of claims that are way older than Covid and demand a wipeout of bondholders?

So far, the market looks a bit puzzled as you can see in the Tier 2 price action over 5 days - most people think burden-sharing won't happen, but for no good reason other than political... and you don't really want to bet the farm on that?

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More from @jeuasommenulle

JohannesBorgen

@jeuasommenulle

31 Oct

This chart is really intriguing.
It looks like:
1) Around mid-September the rising trend reversed in Spain
2) Around mid-October, Madrid diverged from the rest of the country.
Can we explain this with mobility data?

Time at work indeed suggests a different trend for Madrid and the rest of Spain since mid-august (presumably more office work in Madrid that can be done from home?)
But the change is not October

Slight difference in time spent at home, especially as of mid September ; but hard to see the explanation there

Read 6 tweets

JohannesBorgen

@jeuasommenulle

31 Oct

I don't know if this is hilarious, scary, or just nuts.
Can you spot the exact day when president Macron announced #Lockdown2 & everyone fled Paris like a plagued city in the Middle Ages?

that's a jump from 81 to 117 in just one day, something that never happened in the data, even during #lockdown1 or when it ended. (Daily changes YTD)

And let's face it, people in Marseille are not too keen about staying there either

Read 4 tweets

JohannesBorgen

@jeuasommenulle

30 Oct

Enough Covid, let's move back to banks. The Spanish CB published a great Financial Stability Report with extremely interesting data - very useful as we approach a possibly new lockdown. A thread.

There is a lot about corporate weaknesses due to Covid - we've all heard about it, so I'll just mention this graph.

Blue is pre-Covid, red & orange are baseline and bad macro scenarios.

In hospi/leisure weak forms employ 70% of the total employment of the sector. Really grim.

The BoS has an interesting model to explain who takes loan moratorium. The bad news is that there is a strong skew towards lower quintiles of revenues etc.

This is not very encouraging for when payment holidays stop

Read 14 tweets

JohannesBorgen

@jeuasommenulle

29 Oct

J'étaie un peu plus mon thread sur les mensonges de l'allocution du président hier. Allez, c'est parti, on les prend un par un!

"Et si les efforts consentis ont été utiles"
Mensonge #1 : R a été stable autour de 1.2 depuis 3 mois

"Le virus circule en France à une vitesse que même les prévisions les plus pessimistes n’avaient pas anticipé".

#2 - Quelle farce. Je ne compte plus les prévisions plus pessimistes, à commencer par la mienne

Read 22 tweets

JohannesBorgen

@jeuasommenulle

29 Oct

https://twitter.com/jeuasommenulle/status/1321531337438830593

How long are we going to stay in Lockdown? Macron said at least early December but that doesn't mean anything. More important he said the metric was going down to 5000 cases a day. When will that be? A quick thread to estimate the lockdown duration.

https://twitter.com/jeuasommenulle/status/1321531337438830593

My first estimate is highly scientific: the first lockdown was 2 months, assuming the handling of the disease is a bit better but we started the lockdown a bit later and it's winter soon, 2 months sounds like a decent benchmark again.

The second estimate: let's reverse the incidence curve and see when we were at 5K. The incidence curve is so horrible now that it's hard to see the number, but 5k was basically the end of august, so 2 months again

Read 5 tweets