The Eurogroup approves this Monday the first tranche of the aid to the four nationalized banks

The Eurogroup approves this Monday the first tranche of the aid to the four nationalized banks

  • Bankia will receive 17,960 million euros, Catalunya Caixa 9,080 million, Novagalicia Bank 5,425 million and Banco de Valencia 4,500 million.
  • The unblocking of this aid is not free: it asks the Government to continue with the adjustments and further moderate wages in the labor reform.
  • The demands of Brussels will oblige the entities to focus their business model on retail loans and loans to SMEs.
  • The Eurogroup has another issue on its agenda: the Greek debt repurchase plan.
Sede de Bankia

The headquarters of Bankia, in Madrid. Jorge Paris

The finance ministers of the eurozone will approve Monday the injection of the first tranche of 39,500 million of the bank bailout for Spanish nationalized entities, which will begin arriving from December 7, Europa Press reported financial sources.

“The cost will be clearly below 1%, ” said Economy Minister Luis de Guindos, who stressed that it represents an important saving compared to the 4.3% that the Fund for Orderly Bank Restructuring had to issue. (FROB).

The EU aid is unlocked after the Commission and the European Central Bank (ECB), with the assistance of the International Monetary Fund (IMF), have verified that Spain meets the conditions required in the memorandum of understanding.

 

However, Brussels asks the Government to continue with the adjustments and reforms , and suggests in particular that it limit the application of reduced VAT, increase taxes on fuels and continue with the labor reform to guarantee wage moderation, as stated in the report on the bank rescue.

The aid to the ‘bad bank’ will arrive in February 2013 in the form of promissory note On Wednesday, the European Commission imposed a reduction in size of more than 60% to Bankia, Catalunya Caixa, Banco de Valencia and Novagalicia Banco until 2017 as a condition for receive between the four 37,000 million euros.

Specifically, Bankia will receive 17,960 million euros, Catalunya Caixa 9,080 million, Novagalicia Bank 5,425 million and Banco de Valencia 4,500 million. The aid will come in the form of 10-month bills and 18, 24 and 36 month bonds from the European Stability Mechanism (ESM).

In addition to these amounts, the rescue fund will inject a first tranche of 2,500 million euros to the Asset Management Company from the bank restructuring -Sareb, the so-called ‘bad bank’-, which has already been incorporated as a public limited company. an initial social capital of 60,000 euros. The aid to the ‘bad bank’ will arrive in February 2013 in the form of promissory notes, according to the sources of the Ministry of Economy.

Brussels has warned of the “difficulties” that will face the Sareb to sell their homes due to competition from entities that have not received public aid and also want to get rid of their real estate portfolio and can offer financing.

What Brussels asks in return

The demands of Brussels will oblige the entities to focus their business model on retail loans and loans to SMEs in their historic regions, abandoning credit lines in favor of real estate developments. They should also limit their presence in the wholesale market.

The profits must be devoted to the restructuring of the entities. All the banks have committed to cede some industrial and subsidiary holdings, which the Commission has avoided specifying. The proceeds of such transfers will help fund the restructuring and, therefore, will limit the need for additional assistance, in addition to reducing distortions of competition.

In addition, Bankia and Catalunya Caixa will transfer the fixed-income securities they hold in their portfolio of negotiable and treasury securities. Catalunya Caixa will also transfer all of its venture capital funds. The benefits should be devoted to the restructuring itself.

According to the restructuring plans approved by the Community Executive, the shareholders and holders of preferred and subordinated debt must also contribute to the restructuring plans. Your contribution will reduce the necessary state aid by around 10 billion euros, according to the calculations of Brussels.

Finally, all banks undertake to limit the remuneration of their executives according to what is already foreseen in Spanish legislation, not to pay coupon for hybrid instruments and not to publicize public aid or use it for aggressive commercial practices. In addition, they will be prohibited from making acquisitions.

The European Commissioner for Competition, Joaquín Almunia, announced that the next round of restructuring plans will be approved on 20 December – the Banco Mare Nostrum, Banco Caja 3, Liberbank and Ceiss – but he did not want to encrypt the ESM aid they will need

Greek debt repurchase plan

The Eurogroup will also focus this Monday on the rescue of Greece and on the element that was left open after the last meeting on the 26th, in which the program was remodeled and an aid of 43.7 billion euros was unblocked: the plan to repurchase Greek debt.

The ministers will know the price range and the schedule of the Athens program and whose success will depend on the continuation of the rescue of the International Monetary Fund (IMF).

The measures agreed include giving Greece two more years to reach a primary surplus and make the reduction in the level of debt more flexible. The eurozone recognizes that it has no “plan B” for Greece if it repurchases debt at a substantial discount from Greece. that country does not achieve sufficient voluntary acceptance on the part of private creditors.

However, he trusts that the process will end with the expected result, because otherwise they would have to make a “complete revaluation” of the rescue and create a “very, very complicated situation,” admitted a European source. The result of the debt repurchase will be expected in mid-December .

Among the measures agreed on Tuesday is to give two more years to Greece – up to 2016 – to reach a primary surplus – before interest payments – and make the reduction in the level of debt more flexible, which will have to decrease to 124% by 2020 compared to 120% previously established and less than 110% in 2022.

The repurchase of debt is part of the package of measures approved last Tuesday to make the debt Hellenic sustainable, which also includes a new reduction of interest on bilateral loans granted to Greece and the commissions that the country pays to the temporary rescue fund. for the credits.

A moratorium was also established on the payment of interest to the European Financial Stability Fund (EFSF) and an extension of the maturity of the bilateral loans and those of the fund, as well as the transfer to Greece of the benefits of the purchase of Bank bonds. European Central (ECB).

Finally, the Eurogroup will also analyze the future rescue of Cyprus , although it will not make any decision pending the publication of the results of the banking audit to recapitalize it at the end of next week or at the beginning of the following week and the impact of measures on debt sustainability, such as privatizations and the 2013 budget.

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Frankfurt – The expansionary monetary policy of the European Central Bank is not endorsed by everyone. Savers in particular are being hit as interest rates on overnight money and time deposits have been on the decline for years and are stagnating at a low level

Image: Broken euro piece 

Statement: The ECB keeps the euro exchange rate artificially low, mainly benefiting German exports (Source: US Government)

Facts : The exchange rate is expressly not an objective of ECB policy. “We are not currency manipulators,” stresses ECB President Mario Draghi. The development on the foreign exchange markets is driven, among other things, by the different interest rates in the US and the eurozone. With rising interest rates in the United States, it is more profitable for investors to invest money in dollars than in euros. This strengthens the greenback and weakens the European common currency. Many investors also hope that US President Donald Trump will cut taxes and invest billions in infrastructure as announced. The prospect of new momentum for the US economy strengthened the dollar since Trump’s election. Trump admitted that he was partly to blame for the strength of the dollar, people trusted him. The ECB intervened directly on the foreign exchange market together with other major central banks in March 2011 in order to slow down the soaring Japanese yen.

Statement: With the interest rate depression, the ECB expropriated the savers (source: inter alia, Bavaria’s Minister of Finance Markus Söder – CSU)

Facts : Passbook and Co. throw because of the low interest rates hardly anything. As long as the inflation rate lulled close to the zero line, this roughly balanced out. But inflation has started to pick up again so that savers can even lose money. Nevertheless, Bundesbank President Jens Weidmann is in favor of a balanced view: “We are not only savers, but also workers, home builders, taxpayers and entrepreneurs – and from this perspective, the low interest rates are not only negative.”

Statement: The ECB is dominated by the southern European states (Source: AFD top candidate Alice Weidel)

Facts : In the highest decision-making body of the central bank, the Governing Council, all 19 euro countries have an equal voice – regardless of the weight of the respective national economies. In total, the body has 25 members: the 19 chiefs of the national central banks plus the 6 members of the Executive Board around ECB President Draghi. 8 of the 25 members of the Governing Council come from Southern Europe.

Decisions are usually taken by a simple majority. The ECB is politically independent on the model of the Deutsche Bundesbank. Its primary objective is to maintain price stability in the common currency area – that means, according to its own understanding, an annual inflation rate of just under 2.0 percent.

Statement: With its multi-billion bond purchases, the ECB is banning illegal states (source: German economists)

Facts : According to its articles of incorporation, the ECB may acquire government bonds that are already outstanding – for example from banks or other investors such as insurance companies or hedge funds. Since March 2015, the central bank has been buying billions of such securities every month in the fight against economic downturns and low inflation. In order to avoid suspicion of state financing, the ECB has imposed on it to buy no more than 33 percent of the government bonds of a eurozone or a single security. But that does not appease the critics. The central banks of the euro countries, on which the ECB purchases are wound up, have become the largest creditor of the Eurosystem member states due to the ongoing bond purchases, Bundesbank President Weidmann warned at the beginning of 2016. This reduces the pressure for reform in the central government. “Central bank action is seen as a solution to all sorts of problems that go far beyond monetary policy,” said Weidmann in an interview.

Statement: With its ultra-loose monetary policy, the ECB is draining banks of water (source: various banks)

Facts : Long-standing banks are well off paying more interest on loans than paying for savings. But the difference between the two, the net interest income, is shrinking due to the slump in interest rates. The result: Banks and savings banks break the income.

In addition, they have to pay penalties of 0.4 percent if they park money overnight with the ECB. At the same time, however, the ECB supports banks with long-term loans at mini-interest rates. From June 2016 to March 2017, the Federal Reserve launched a new four-year loan program. “Low or negative interest rates can not be held responsible for low profitability per se,” argues ECB vice-president Vítor Constâncio. Europe’s banks need to adjust their business models to improve their business prospects.

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I – US growth, consumption and market valuation

At a time when stock markets seem to be weakened by European uncertainties and a series of bad US indicators, this paper seems particularly welcome.

Its problem shows show that a stock market reversal is likely in the US. It seems even inevitable at a time when the EDF is reducing its EQ operations to very little. The reader in a hurry will be able to go to the last chart which shows the close relationship between the operations of QE of the FED and the market valuation illustrated by the S & P 500.

The probable end of the QE program gives a particular importance to this paper. Indeed, it is not the improvement of the real employment situation that explains the stopping of the EDF’s QE policy, it is the risk – already fully present – of seeing the QE policy led to the formation of a stock market bubble whose bursting would be catastrophic. This exit of the QE is explained by the absence of effect of the reduction of the volume of purchase of securities (RMBS and Treasury bills) on the stock market valuation. The FED is, therefore, acting to put an end to an EQ program that has become dangerous because it has a speculative effect on the entire capital-money – especially its floating part – ready to engage in speculation.

It also follows that the Fed will have to quickly revise its interest rates on the rise, low-interest rates favor speculation by the leverage they induce. The stalling of the QE policy and the rumors surrounding the date of rising interest rates are therefore not positive signs.

The operations of the FED are therefore in no way the sign that the economic situation is really better in the US, it is only the ignorant to believe this nonsense, the situation of the US economy remains uncertain, fragile positive results and the exit of crisis always doubtful.

We start a series of papers on the consumption function in the USA.

Broadly understood consumption includes the purchase of goods and services and real estate investment; it accounts for nearly 75% of GDP.

We want to first examine the consumption of the top ten households. This consumption receives a boost from the valuation of financial assets that are very highly concentrated in their hands. The backbone of the valuation of these assets being the stock exchanges, it is primarily towards the stock market valuation that we must focus our attention. An upcoming post will deal with the movable valuation which is its counterpart.

This market valuation is fundamental in the consumption of the top ten; the valuation of the shares affects other financial products in the household wealth, we think in particular of mutual funds. This importance will be measured by referring to the Flows of Fund Account (ref).

As stock holdings are concentrated in the hands of the Top Ten more than 80%, stock market valuation involves the decision to consume rich and wealthy households, it also weighs heavily on households in the top quintile (Top 81-100 of percentiles) which accounts for 50% of the aggregate income of US households.

Stock market valuation is a multifaceted feature of US growth. The increasing valuation of shares encourages consumers to consume and reduce the savings of households in the top ten. GDP benefits from this consumerism. The speculative gains on the shares can give rise to value achievements after the sale of stock assets; the amount of these sales can be reinvested in financial products or spent. GDP benefits from this arbitrage, while taxes on capital gains enrich the state.

In the event of a reinvestment of capital gains on the sale of shares, the purchase of new shares is an additional income promise received in the form of a dividend. Immediate consumption of income can be favored by the promise of a growing accumulation of market values giving rise to increasing dividend amounts. The top ten can only be encouraged to consume.

With US income becoming increasingly polarized upward in the social pyramid, the state of the stock markets is therefore critical to the consumerism of the top ten and growth. Our review of statistical series also leads us to consider that since the millennium crisis, this imbalance of income to change the nature of crises. As the consumption of the top ten is the engine of American growth, recessions followed by a decline in the value of movable assets are rapidly affecting consumption, which is shrinking at the pace of asset value. This contraction of top ten consumption then has a recessionary effect on the rest of the economy, which in turn affects household consumption levels of low 90 or low 80.

On the other hand, the rise in the value of movable assets has a positive effect on the exit from the crisis.

The holder of the various forms of capital – productive, shareholder, interest-bearing – the income of the top Ten is recovering faster than the direct and indirect wage income. With highly paid wage positions, top ten employees are also less affected by wage cuts and unemployment. It is, therefore, the top ten that provides the first driver of recovery, the rest of the economy follows.

Stock market valuation is, therefore, an essential determinant of consumer spending decisions in the broad sense. A strong market valuation is, therefore, the condition for a rapid return to the consumerism of the top ten, consumerism to support growth. It is fundamental to rush this valuation to accelerate the recovery.

Our paper finds here its theme: the valuation of US stock markets has been extremely fast since the crisis: the S & P 500 index has thus increased from 808 in the T-1 2009 to 1946 today: the doubling is spectacular. It is, therefore, necessary to question the quality of this exceptionally fast and strong valuation.

Indeed, excessive valuation could be a serious obstacle on the road to “recovery”. One can even argue that a reversal of the stock market – resulting from an excessive valuation of shares – would result in a return of economic difficulties that the country is struggling to extricate itself.

Make no mistake: the stagnation of the real income of the low 80-90, a high level of real unemployment, real estate assets artificially inflated by the FED are all elements that weaken household demand. A stock market reversal could have in such conditions only very negative effects.

To judge the strength of the stock market valuation, we wanted to estimate the quality of this valuation which observers agree that it owes a lot to EDF QE since 2010.

We wanted to examine whether this valuation was justified or whether it was largely exaggerated. To do this, we took the broadest indicator of stock market dynamism: the S & P 500. We confronted it with the profits of anonymous US financial (Financial Corporate Business) and nonfinancial (Non-Financial Corporate Business) companies. Finally, we measured the impact of purchases of FED securities that provided liquidity to financial market participants.

We can thus measure the value of the US stock market, examine these relations to the real economy and estimate the merits of this valuation. It is not enough to say that the QE operations of the FED have had an impact on stock prices. It is also necessary to determine the weight of this impact which could play alongside other factors explaining the stock market variations.

Then becomes easy to make a judgment on this valuation and the risks – if any – that it can represent an exit from the crisis where the consumption of the top ten is so important.

Important Tips For Stock Market Investing

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Capital markets tumbled once again today as investor self-confidence flagged. Well-known investor plus analyst Doug Kass expected last week that markets would undoubtedly begin sliding significantly reduced beginning this week. So far he or she appears loans for short term right on the indicate. He told CNBC’s Lewis Kudlow that he expects the particular S&P 500 to slide down again to it’s previous reduced of 660 this year and even farther. On March third, Kass predicted that the marketplace would hit bottom within a couple of days and it did. The S&P bottomed out at 660 on March 9th.

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A performance bond is definitely taken out to guarantee service or even work. Again, another illustration. Let’s say you hire the contractor to build your dream house. The price to build your home is definitely $250, 000. Types of commercial bonds for the project could be released to you at the cost of the particular contractor. This would cover a person if the contractor tries to depart before the project is finished. Or if the contractor will not fulfill obligations federal dl unsubsidized loan agreed to within the contract. If you go to the bank to get your home constructed, they will most likely require the particular bond be issued to them, given that they will be a most excellent exposure to reduction. Performance bonds can be removed on a variety of things, yet are most frequently used in the particular construction or contracting company.

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Here’s another illustration. Let’s say you have $800 within your savings account and you are adding to the particular account $100 per month. Your own broker tells you about several high-quality types of business bonds and the provides interest rates are at 9. 65%. To meet the purchase from the bond you need $1025 in addition accrued interest. The question is: should you borrow $300 through the bank repaying $100 monthly and buy the bond today? If you leave your money in a 6% savings account interest, you can earn $15 in curiosity. If you buy the bond you can earn – the interest around the bond investment of $24. 73 (3 months) without the bank interest rate of 13% of $6. 50 getting out of the relationship $18. 23. Since this really is more than the savings attention it would make sense to lend money to buy the relationship now in order to increase the come back on your money.

The way these musical instruments function is the principal places up a sure percent from the amount of the bond, known as a bond premium. This particular surety then puts upward a “surety credit” this is the required guarantee, which is to state, the bond. If the underlying principle does not follow the appropriate recommendations and a claim is made, the particular surety will investigate to make sure the claim is valid. On validating the claim, the surety then looks to the principal with regard to payment of the claim plus legal fees that may be connected with it.

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