Trader Talk

EU Finance Ministers Won't Get Fooled Again


Won't Get Fooled Again: I was 15 when the iconic Who album came out in 1971, and bought it. So, apparently, did some of the euro zone ministers.

European Union Flag
Jonathan Kitchen | Image Bank | Getty Images

The ministers are no longer being fooled. They will not sign off on the next 130 billion euro ($171 billion) Greek bailout bill until:

1) The Greek Parliament formally votes into law the measures demanded by the “troika,” along with the PSI (private sector involvement). The vote is now scheduled for Sunday;

2) specify how it will cut an additional 325 million euros ($428 million);

3) they receive pledges from the individual parties that the deal will actually be implemented once signed into law.

This is not nearly over. Watch the next step: Pledges will not be enough. The finance ministers will demand the establishment of an escrow account that will give bondholders preferred status and guarantee the money will be disbursed as intended.

Will the Sunday vote pass? The coalition government has 252 of 300 seats — in theory it should. But one of the reasons the markets is down is there are noises that the coalition could fall apart over the weekend. Several parties are holding meetings today to decide on what their positions will be, but individual members could vote against the party line.

Come on in, the bond water is fine: It doesn’t sound like much, but the European Banking Authority (EBA), the guys who regulate European banks, said there would be no stress test until 2013. That means banks will not have to “mark to market” any bonds they buy in 2012 to get pass any stress test. That makes it more likely banks will be comfortable buying government bonds and may also increase the chances of a larger take-up of the European Central Bank’s second long-term repo operation (LTRO) on Feb. 29.

French politics: While everyone is focused on the Greek elections in April, Nicolas Sarkozy is expected to announce his candidacy for president next week. That means more rhetoric, but also more tightly controlled media and sound bites.

What happens if the Greeks don’t get it together before the 14.5 billion euro ($19 billion) debt payment is due March 20? Will they default? Don't bet on it: It’s more than likely some kind of “bridge loan” will be arranged. The deal will not die, incredibly.

2) Get the message: Every single euro bank has reported horrible results, with gloomy outlooks. Today Barclay’s continued the trend, reporting generally weaker revenues and 2011 net profit fell 8 percent on lower investment bank revenue. The company’s CEO called its 2011 return on equity “unacceptable” and warned the 13 percent target may not be achievable by 2013. Barclay’s is a standout in Europe as major European banks — Lloyds Banking Group, Deutsche Bank, Credit Suisse, and UBS — are all down 4 percent to 7 percent in Friday trade.

European Banks

3) LinkedIn shares surge 9.3 percent after the online professional network posted better-than-expected fourth-quarter results after the bell yesterday. The company provided solid outlook for the first quarter, expecting $170 million to $175 million versus the Street’s $171 million estimate. With this morning’s gains, LinkedIn is up 84.4 percent from where the social media company priced its shares at before going public May 19, 2011.

4) NYSE-Euronext earnings beat, but the emphasis was on what the exchange would be doing now that the merger with Deutsche Boerse did not happen. Not surprisingly, the immediate focus is on cutting expenses, returning capital and expanding electronic trading. CEO Duncan Niederauer, addressing the dismal trading volumes, said January's volume (17 percent below the same period last year) was not indicative of the 2012 environment.

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