U.K.’s Co-op Bank Agrees to a $2.4B Bail In, Bondholders Get a Haircut

“LONDON (Reuters) – Britain’s Co-operative Group has agreed a plan to plug a 1.5 billion pound ($2.4 billion) capital hole at its bank which forces bondholders to pay part of the bill, avoiding a repeat of the taxpayer-funded bailouts staged during the financial crisis.

Using a “bail-in” model, bondholders must swap their debt for new bonds and equity in the bank to be listed on the London Stock Exchange, while the Co-op Group, Britain’s biggest customer-owned business, will also provide financial support for its banking unit, the Co-op said on Monday.

The future of the bank, which has 4.7 million customers, has been in question since Moody’s cut the lender’s credit rating to junk status and warned it might need taxpayer support – something the bank denied. Its capital position had come under increased scrutiny since it pulled out of a deal to buy hundreds of bank branches from Lloyds Banking Group in April.

The Co-op Group, which also runs supermarkets, funeral services and pharmacies, said the plans will provide stability for the Co-operative Bank <cpbb_p.l>, generating 1 billion pounds of new capital this year and 500 million pounds in 2014.

“We have put in place a detailed and comprehensive solution to meet the current and longer-term capital requirements of the bank. In doing so we have agreed a plan to ensure its future,” said Chief Executive Euan Sutherland.

The measures will involve an exchange offer to investors in the bank’s subordinated capital securities, resulting in the transfer of ordinary shares which will be listed in October.

Co-op’s debt holders are all ‘junior’, or ‘subordinated’, a type of bond that pays higher interest than ‘senior’ debt, but carries a higher risk. These kinds of bonds suffered heavy losses in rescued banks in Ireland and Spain….”

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“(Reuters) – Starboard Value LP, a large shareholder in Smithfield Foods Inc , urged the world’s largest pork producer to explore a breakup rather than go ahead with a planned $4.7 billion takeover by Chinese meat company Shuanghui International.

The activist shareholder, which disclosed a 5.7 percent stake in the company on Monday, said Smithfield might be worth “well in excess” of the $34 per share offered by Shuanghui if it split into hog production, pork and international units and shopped the businesses separately.

Starboard said in a letter dated June 17 to Smithfield’s board its sum-of-the-parts valuation was between $44 and $55 per share.

Officials from Smithfield and Shuanghui were not immediately available to comment….”

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New orders fall while unemployment ticks higher…..

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“West Texas Intermediate crude traded at the highest price in more than nine months because of renewed speculation that unrest in Syria will spread to other parts of the Middle East and disrupt supplies.

Futures gained as much as 0.8 percent after rising the most in five days on June 14, capping a second weekly gain. U.S. President Barack Obama was said to authorize arming Syrian rebel groups. Iranian President-elect Hassan Rohani’s vow to improve ties with the world carried him to a surprise first-round election win. Stronger summer demand and supply risks continue to support the market, Morgan Stanley said in a research note.

“We’ve seen prices rising over the past week primarily over geopolitical worries,” Ole Hansen, the head of commodity strategy at Saxo Bank A/S in Copenhagen, said by phone. “We are settling in for a range-bound day of trading and any major moves will have to be geopolitical related.”

WTI for July delivery was at $98.52 a barrel, up 67 cents in electronic trading on the New YorkMercantile Exchange as of 11:31 a.m. London time. It had climbed as high as $98.67, the most since Sept. 14. The volume of all futures traded was 30 percent above the 100-day average. The contract rose 1.2 percent to $97.85 on June 14, advancing the most since June 7 to the highest settlement since Jan. 30.

Syrian Unrest…”

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“Vale SA (VALE5), Brazil’s largest exporter, said further local currency depreciation could counter cost rises and a slowdown in Chinese iron-ore demand as it seeks to regain market share from Rio Tinto Group and BHP Billiton Ltd. (BHP)

The real, the worst-performing emerging-market currency in the past three months, probably will weaken to about 2.40 from 2.15 per U.S. dollar, bolstering Brazil’s competitiveness, said Jose Carlos Martins, Vale’s executive director for ferrous and strategy. China’s iron-ore and steel demand growth is set to slow to about 5 percent from 10 percent in the first five months of the year, he said….”

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“Australia’s dollar rose, extending its first weekly gain against the greenback in six, amid speculation record bets on its decline may be overdone.

The Aussie rebounded from its biggest drop in a week before minutes tomorrow from theReserve Bank of Australia that could point to the timing of a potential interest-rate cut. The Australian and New Zealand dollars climbed against their 15 major peers before a Federal Reserve meeting this week that may provide clues on when policy makers will begin curtailing quantitative easing. The kiwi dollar touched the highest this month against its Australian counterpart after New Zealand’s consumer confidence climbed to the most in three years.

“Positioning is at record extremes” in the Australian dollar, said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. Trading “should remain largely choppy, but there’s a risk of potential short-covering,” she said. A short position is a bet an asset’s price will fall.

The Australian dollar rose 0.5 percent to 96.21 U.S. cents at 5:02 p.m. in Sydney from June 14, when it dropped 0.7 percent, the most since June 7. It gained 0.8 percent last week. The Aussie strengthened 1.7 percent to 91.55 yen.

The New Zealand dollar advanced 0.6 percent to 80.94 U.S. cents, and gained 1.5 percent to 76.97 yen. It was little changed at NZ$1.1894 per Australian dollar after earlier gaining to NZ$1.1850, the highest since May 29.

Record Shorts…”

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“Elan Corp. (ELN) shareholders approved a share-repurchase program, a vote that Elan says will force Royalty Pharma to end its unsolicited $6.7 billion takeover bid.

Investors voted against three other transactions, including an investment in Theravance Inc. (THRX)’s royalties, Elan said in a statement today after shareholders met in Dublin, where both companies are based. Royalty Pharma’s offer has been contingent on investors rejecting all transactions proposed by Elan management, according to a ruling by the Irish takeover panel.

The vote may not necessarily end Royalty Pharma’s pursuit. Elan said last week it will invite Royalty Pharma to participate in a formal sale process with other potential suitors. That suggests the two companies may begin negotiations, ending a standoff that has lasted almost four months, said Adrian Howd, an analyst at Berenberg Bank in London.

“By going into a formal sale process and inviting Royalty in, Elan looks to be taking the hostility out a bit,” Howd said before the vote announcement. “They’re saying, ’Whatever happens on Monday, we’re in a sale process now, so if you’re interested, come and talk with us.’”

No Assurance…”

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World Markets

Currencies

Commodities

USD Libor

Euribor

Yields for Japan, Italy, Spain, France,  and Germany …

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“There is something magnificent about fighting a battle that you know you can’t win.

If we don’t carry out those acts of defiance on a spiritual and moral level; we die” ~  Unknown ~ 

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“Only after the last tree is cut down, the last of the water poisoned, the last animal destroyed…only then will you realize you can not eat money” 

~Cree Indian Prophecy~

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I am taking a long weekend so cheers on your weekend when your done with “corporate share cropping”

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“In the years following the financial crisis, a grand, sweeping narrative took root in global investment circles. It held that investment flows were undertaking a reallocation that was centuries in the making, as money began to leave the debt-laden, aging societies of the developed world and enter high-growth emerging markets.

After years of struggling with their own poor finances, these up-and-coming markets were now thought to be in better shape than their wealthier peers in Europe and North America. A big run-up in emerging market stocks, bonds and currencies seemed to prove that point. Read “The Man of Steel and Ben Bernanke.”

But now a worldwide selloff in emerging markets suggests this story needs some editing. Clearly, these global investment flows weren’t solely explained by this historic turning of the tables; they were also aided by an abundance of cheap liquidity from the developed world’s biggest central banks. The recent reversal of that effect reminds us that however much emerging markets have matured, they remain vulnerable to shifts in the richer economies….”

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“The derecho threat is back, and one in five Americans, or 64 million people in 10 states (possibly a 240-mile stretch), could be in its path.

A derecho, Spanish for straight, is a widespread and long-lasting storm that comes with fast-moving thunderstorms and rain, and also can bring damaging high winds, hail as big as golf balls as well as tornadoes. Weather forecasters have been warning that this rare weather  phenomenon, which last year left a 700-mile trail of damage across the Midwest and mid-Atlantic, this time could hit a swath of states from Iowa to Maryland starting Wednesday. Watch a chilling roundup of what happened last year

How bad can it get? Wind gusts of 91 mph were recorded at the Fort Wayne International Airport in Indiana during last year’s June “super” derecho storm.

Forecasters warned that power outages could also be a result —  3.7 million were left without electricity in the middle of a heatwave after last year’s storm. The June 2012 derecho also killed 22 people, including an elderly lady sleeping in her bed when a falling tree crashed into her home. Tornadoes that have pummeled the Midwest this year have already killed 56 this year….”

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“Bond yields are headed near 4% and not even Fed Chairman Ben Bernanke can stop the “inevitable shock” that’s coming.

That’s a fresh view from Goldman Sachs’s former chief economist Jim O’Neill, writing an op/ed column for Bloomberg on Wednesday, entitled, “Can Bernanke avoid a meltdown in the bond market?”

His answer? Not really….”

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“The U.S. government posted a budget deficit of $139 billion in May, 11 percent higher than a year ago and above economists’ expectations, partly because of temporary calendar adjustments, the Treasury Department said.

May has had a deficit for 54 out of the last 59 years, a Treasury official said, as it is typically the month when the government refunds tax payments to U.S. citizens.

But so far this fiscal year, which began in October, the government budget deficit has shrunk faster than expected, standing at $626 billion at the end of May, 26 percent lower than the deficit in May 2012.

That is largely due to a 15 percent increase in tax receipts compared to last year, at $1.8 trillion, while spending has increased by only 1 percent. Revenues have been boosted because payroll tax cuts expired, taxes went up on richer Americans and the economy has started to recover.

The Congressional Budget Office last month estimated the United States is on track for its first deficit below $1 trillion since President Barack Obama came into office. The deficit should fall to 4 percent of GDP this year, less than half the shortfall in 2009, the CBO said….”

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“Following yesterday’s ugly 3 Year auction, some were worried the bond market weakness could spill over to today’s benchmark 10 Year reopening of $21 billion in paper. It prices just through the When Issued of 2.210%, or at 2.209%, a little better than expected, although the highest yield since October of 2011. So while the demand on the surface was sufficient, the Bid to Cover, which dropped to only 2.53, below last month’s 2.70, well below the TTM average of 2.92, and the lowest since August of 2012…”

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“It’s one of the hardest habits to break.

We begin pledging our allegiance to the state before we even know what that means. We learn to sing bombastic, patriotic songs of praise at an age when we don’t understand the vocabulary of the lyrics.

And after years of repetition and social reinforcement, the idealistic devotion to country becomes profoundly ingrained in our personalities.

It’s a lifelong indoctrination underpinned by a deep instinct to belong to something greater than ourselves.

Human beings are not meant to exist in isolation. We strive for inclusion and acceptance of our peers. And the forming of social groups, whether families, tribes, dynasties, and kingdoms is as old as human civilization itself.

Over the centuries, though, the social constructs have changed dramatically. It used to be closely knit, smaller groups with shared values and dedication to the other members. Now our loyalty is manipulated towards a political union… and the government which represents it.

In other words, we’re inculcated to have an unquestioning allegiance to the system.

The combination is so powerful that even in the face of overwhelming evidence, the sentiment is difficult to shake.

It’s clear now that the system has turned on the very people who invest their faith and confidence in it.

We can see the obvious effects of decades of morbidly destructive policy.

We can see how the way of life we grew up with has become a distant memory, replaced by a cheap masquerade.

We can see the debt, the money printing, the police state, the utter collapse of justice and rule of law… and the shiny facade of mindless entertainment and wanton consumerism as an attempt to cover it all up.

And yet… it’s still so hard to turn one’s back. Deep within ourselves there’s still a quiet voice that says “This can be fixed. It’s going to get better.”

This is the voice of hope. And despite all the rational arguments which point to a very conspicuous trend, this voice is very difficult to silence.

Hope, along with loyalty, is one of the most admirable traits of humanity. And it’s certainly honorable to want to rebuild what has been lost. But please consider these few points:

1) The trend is clear. And in the West, it’s negative. We routinely discuss in this column that history has an almost unblemished track record of once-great nations and empires collapsing into tyranny as their economic fundamentals deteriorate.

 

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The West has long passed the historical point of no return where degenerate governments have to borrow more money simply to pay interest on the money they’ve already borrowed.

If the trend holds, history shows that we can expect capital controls, banking controls, direct wealth confiscation, oppressive taxes, military conflict, rising crime rates, social unrest, etc.

None of these is a particularly rosy outcome….”

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“The tectonic plates of the world economy are shifting, moving the yield on the 10-year Treasury to the highest level in more than a year and shaking financial markets from Tokyo to Mumbai and Johannesburg to São Paulo.

For the past few years, the global economy, struggling to recover from a financial crisis, has relied on a few constants: The U.S. would print plenty of money and keep interest rates very low. China would provide a lot of demand and vacuum up commodities from around the world. And Japan was largely irrelevant.

Suddenly, all three of those are being questioned in markets, triggering paroxysms in stocks, bonds, commodities and—particularly, in the past couple days—the currencies of emerging markets.

The big questions hanging over markets and the global economy now: Is this is the inevitably bumpy beginning of a welcome return to normal—a world in which the U.S. economy doesn’t need big and repeated doses of monetary stimulus, Japan grows again and China’s economy gently slows to a sustainable speed?

Or is it a harbinger of more volatility in financial markets—perhaps the result of a misreading of the Federal Reserve’s policy intentions by the markets or a premature move by the Fed to cut back on easy money—that yields an unwelcome increase in market interest rates before the U.S. economy achieves what Fed Chairman Ben Bernanke once called “escape velocity”?…”

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“A closely watched consumer confidence number that routinely moves markets upon release is accessed by an elite group of traders, for a fee, a full two seconds before its official release, according to a document obtained by CNBC.

A contract signed by Thomson Reuters, the news agency and data provider, and the University of Michigan, which produces the widely cited economic statistic, stipulates that the data will be posted on the web for the general public at 10 a.m. on the days it is released.

Five minutes before that, at 9:55 a.m., the data is distributed on a conference call for Thomson Reuters’ paying clients, who are given certain headline numbers.

But the contract carves out an even more elite group of clients, who subscribe to the “ultra-low latency distribution platform,” or high-speed data feed, offered by Thomson Reuters. Those most elite clients receive the information in a specialized format tailor-made for computer-driven algorithmic trading at 9:54:58.000, according to the terms of the contract. On occasion, they could get the data even earlier—the contract allows for a plus or minus 500 milliseconds margin of error.

In the ultra-fast world of high-speed computerized markets, 500 milliseconds is more than enough time to execute trades in stocks and futures that would be affected by the soon-to-be-public news. Two seconds, the amount promised to “low latency” customers, is an eternity.

For exclusive access to the data, Thomson Reuters pays the University of Michigan $1 million per year, according to the contract, in addition to a “contingent fee” based on the revenue generated by Thomson Reuters. The contract reviewed by CNBC was signed in September of 2009. It expired a year later. Thomson Reuters and the University Michigan confirmed that the relationship still exists.

In a statement, Thomson Reuters said, “Through an agreement with University of Michigan, Thomson Reuters is the exclusive distributor of the Thomson Reuters/University of Michigan Surveys of Consumers to its clients through various subscription services as well as to the general public via a press release. Details of the tiered release of this data are provided openly to Thomson Reuters customers and the wider public and anyone wishing to trade on this data can pay for the service that best meets their data needs.” …”

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“……”There are simply too many (ugly) charts we could stick inside [of this note] and so we stopped short of doing so,” says Wilkinson. “It is hard not to feel as though we are watching out for the lead domino to topple – the one that could set off a chain reaction.”

Here’s Wilkinson’s take:

The pain continues across the Emerging Globe. Having fallen to a two-year low earlier in the week, Brazil’s benchmark Ibov index is lower again today. Mexico’s stocks slid by 2.00% in the face of rising volatility in US stocks. The CBOE Vix index is fast-approaching last week’s peak and the highest since mid-April.

And then there is the little matter of the yen, whose vacillations continue to trip-up US equity prices. As we noted late on Tuesday the Japanese unit was closing stronger than when it snapped the dollar’s grip last week. And more problematic was a broadening of the yen’s advance against the euro currency, British pound and the Aussie dollar. The dollar index just snapped to a two-month low midweek indicating a decidedly risk-off mood and one that hardly supports the earlier return for risk-appetite signaled by a move higher for equity prices.

Finally, the S&P 500 has slowly returned to beneath Friday’s low – the low supported by an above consensus payroll reading. Failure to hold that level could arguably cause stocks to have a stab at the fear-inspired lows of last week at 1598….”

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