Monday, September 29, 2008
Clink. Clink. Clink.
That sound you hear is the pennies dropping in Europe. While yesterday saw what appears to be an anticlimactic agreement in Congress on the format for the TARP, the real weekend news came from this side of the pond. What's the German word for "schadenfreude"*?
Where to begin? How about with Fortis, which last year decided it was a good idea to issue stock, which traded at a P/E of 9, to help finance its partial purchase of ABN Amro (a virtually identical company), at a P/E of 17. The remainder of the purchase was funded by short-term debt....not exactly the best idea at the beginning of a credit crunch. The outcome? A problem so big that it takes not one, not two, but three governments to bail it out. So after Friday's nasty squeeze higher, Eurostoxx is on the back foot once again. The feel-good factor from the TARP already feels like a long time ago.
Meanwhile in Germany, the country's second-biggest commercial property lender has been supported by a shadowy cabal of other German institutions. It's a very European solution to financial crisis; it seems as if most institutions here don't bother to tell you what the crap they own is worth, so it shouldn't surprise that they don't bother to tell you who is saving their bacon. Hypo Real Estate's losses are being blamed on Ireland-based Depfa Bank; one wonders how the German Finance Minister will manage to blame this one on the Yanks. The market is voting with its feet; the front end of Europe, typified by the Schatz below, appears to be breaking out. And here in the UK, the Gordon and Alistair show has added another property to its portfolio. The demise of Bradford and Bingley as a private sector concern is one of the least-surprising in recent memory. The UK government is acquiring quite a tasty portfolio....one wonders if they are trying to match George and Hank in the "my portfolio of nationalized turds is bigger than yours" competition.
Regardless, last Monday's surge in EUR/USD seems like a long, long time ago. Would it really surprise to see it back near recent lows by the end of the week? (For that matter, would anything surprise in this crazy market?)
Lest readers think that Macro Man is picking on Europe, Sunday's New York Times carries an interesting article on American-style kleptocracy. While the chicanery of AIG FP is unsurprising to those familiar with them, the real talking point in the story was confirmation that Goldman (alone among financial institutions) was at the table when the AIG bailout was crafted. No wonder Warren Buffett is happy to invest in GS; where's your downside when they get to bail themselves out?
Hmmmm. What's the German for "crooked market"?
* This is a joke.