Diluting shareholders is positive for the SEB stock - apparently
Wow, another day, another lesson learned. Who would have thought that SEB seeking new capital in the current environment and diluting present shareholders in the process would be positive for the stock?
Not me anyway.
One has to expect the IPO buyer´s discount from yesterdays share price to be at least 10-20% as a guess, no?
Fine, the Swedish government making 50 Bn Sek readily available for Swedish banks could be viewed in a positive way. With the consensus of analysts claiming this will be enough to secure the Swedish banks no matter what, I can see where they are coming from. However, I beg to differ.
Since yesterday, the Latvian Agricultural minister has resigned due to massive farmer protests, driving their tractors all the way to the parliament to make their case. Today we have a noconfidence vote for the Government in the Latvian parliament. Would have thought that this might not necessarily be a positive if the Government was ousted. Especially as a new one might just let the currency regime go. But, what do I know?
Kazakhstan devalued their currency, KZT, by 18% since yesterday. The KZT will now be allowed to fluctuate by +-3% around the level, (Usd/Kzt = 150). Doing it without wasting much FX reserves and they have a massive government support program in place for their banks.
They might not let the currency float, but, they have at least gone with the program and devalued their currency as the RUB has weakened. The market also expected this.
Now, Khazakstan might not have much trade with the CEE directly but they do with Russia, so,,, Anyway, another nail in the coffin for the followers of "the fixed currency regime - in a deflationary environment" theory.
*PLN collapsing
PLN collapsed and moved from a low of 4.4565 yesterday to a high of 4.7060 so far today.
A timely call on this one as the break of 4.50 was highlighted in yesterdays daily. http://todaysmacrotrading.blogspot.com/2009/02/still-cold-outside-but-markets-are.html
This should also weigh heavily on the Baltics and the Swedish Banks, at least in my book. The CEE tensions remain. Hard currency shortages and credit/liquidity issues in general and in the case of Poland, this comes on top of the very problematic corporate hedging situation where the FX Options "hedges" have gone horribly wrong.
*Why the positive equity mode?
Admittedly, there a few positive signs overnight;
- The Chinese PMI released overnight indicating manufacturing might no longer be in free fall.
-The Baltic Freight Index has worked higher after falling 99% from high to low. Some of last year´s decline was due to funding shortages, hence, the rebound can also be viewed in the context of improved funding conditions. Supporting the most recent lending survey from the US.
- Global corporate debt issuance recovered in January, reaching almost "leverage world" levels, with about 245Bn Usd of corporate bonds issued. (Amongst the three highest levels for the last 18 months).
- Yesterdays US housing market data was better than expected.
-Todays release of a 3.8% rise in Australian retail sales was also a positive surprise
- Chinese Governor Zhou Xiaochuan said the CNY was currently at a balanced level vs the USD. at 6.85. Relieving the market of any immediate CNY devaluation fears.
Still, to me, this should all be subordinated to the negative events striking the CEE, Russian and Baltic area and thus, the Swedish Banks. Especially now that it is clear they will need more capital. the question is only -how much? As a role of thumb - it will be more than what they have asked for so far.
* Equity markets underestimating global stress and risks building
It seems the equity market is understating the risks involved, especially when it comes to " western European banks" exposure to the CEE.
According to BIS, the total bank credit from "western European banks" to the CEE area is 37%.
That is the highest number in the world when it comes to crossborder lending between "foreign investors" and emerging markets, making CEE the most vulnerable to any credit cut offs.
It becomes evident when one looks at the BIS data, showing how foreign investors set high targets for return on equity in the CEE countries, either overestimating the risk adjusted ROE or underestimating the credit risk. The CEE countries are already starved of foreign funds and are in desperate need of hard currency.
As time goes by, balance sheet issues will refrain "European banks" from increase investments into these countries, even as the underestimation of credit risk is recognised. This will leave the CEE countries "strapped for cash", hurting growth and asset prices further in this geographical area. (I dont have to mention the Baltics, do I?)
The impact will obviously be further downhill slides for the CEE countries generating further creditlosses, cutting off further credits, etc etc in a downward spiral.
This is basically what forced the Japanese banks out of Asia during the 1997 - 1998 crises
The Eurozone is running the risk of getting hit hard by it. This on top of current issues, already struggling with their Eurozone North - South polarization of competitiveness and current account balances, leading to massive sovereign spreads differentials. These tensions will not go away - on the contrary, they will increase going forward.
The equity market is currently ignoring the build up of financial risks in the CEE, Baltic and Eurozone area. As usual, it is all about timing and currently I am obviously out of synch with the equity market. I will bide my time and pull in my bearish equity horns til the right time comes. Hopefully I will not have to wait too long. At least I seem to be in phase with the FX market.
Arrivederci, and,
As always - good luck
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