2017-05-24

Catalonia Threatens Immediate Secession

The European Union is a catalyst for independence movements. Small regions and even cities might struggle as an independent entity. National governments are more powerful and would refuse to allow a region or city to leave. Under the EU, however, the national governments are subordinate. A city-state could function within the EU. The flourishing of independence movements is a direct result of the EU. This complicates the nationalist and identity movements because governments such as Spain are powerless given their large debt. If the EU survives, Catalonia goes free whether Spain is in the EU or out of it. From the perspective of the EU, breaking national governments into small pieces will make it the unchallenged ruler of Europe. Spain and Italy are threats, but 50 city states and regional governments in the former Spain and former Italy aren't. Thinking further down the road, the most unified countries at the moment are in Eastern Europe, Hungary and Poland. Nationalist nation-states that remain united will grow in power as Europe fractures.

El Pais: Catalonia to immediately declare independence if no referendum held
Spain’s Attorney General José Manuel Maza is set to examine the legality of a plan outlined by the regional government of Catalonia to activate immediate secession from Spain if the central government in Madrid stops it from holding a vote on independence – something it is planning on doing in September or October of this year.

The independence mechanism is detailed in a secret draft version of legislation being prepared by the Generalitat, the Catalan regional government, and to which EL PAÍS has had access.

The Noose Tightens: CBRC Investigates Trust Loans to Real Estate

Back in 2014: China Tightens Oversight of Trusts as Default Risk Rises
China’s banking regulator ordered owners of the nation’s 68 trust companies to be prepared to provide funding or sell their stakes as the risk of defaults rises in the $1.9 trillion industry for high-yield investment.

The China Banking Regulatory Commission told trust companies to either restrict their businesses and reduce net assets or have shareholders replenish capital when the firms suffer losses, according to an April 8 notice that was seen by Bloomberg News. The regulator will also impose a “strict” approval process on trust firms’ entry into new businesses and products starting this year, according to the document.
After a brief crackdown, the trust business was up and running again.

Bloomberg, April 2017: China Said to Crack Down on Property Financing Through Trusts
The China Banking Regulatory Commission’s guidance covered real estate and other industries facing overcapacity, according to people familiar with the matter. The CBRC will take action against disguised property financing by the 20 trillion yuan ($2.9 trillion) trust industry, including lending through partnerships, asset management plans or related businesses such as suppliers, the people said.
This crackdown is now underway after it revived in the first quarter.

iFeng: 房地产又一通道被收紧 银监会检查信托违规拿地
China Securities Journal reporter was informed that the recent CBRC to the banking regulatory authorities issued "2017 trust company on-site inspection points."

01

Whether through the combination of equity and debt, partnership business investment, the proceeds of receivables and other modes of disguise to the real estate development enterprise financing to circumvent regulatory requirements, or to assist other institutions to carry out real estate trust business.

02

Whether there is a real equity or creditor's rights in the project of "stock + debt", whether there is a situation where the real estate enterprise acts as a beneficiary of the shareholders' borrowing, whether or not it is disqualified in the name of the shareholder's loan.

...Industry sources said that as other financing channels are limited, the trust company to become an important channel for real estate developers to finance. But this document issued after the trust company to carry out the current financing business is facing tightening. This means that real estate financing and an important channel is being tightened.
Caijing: 房企融资四面楚歌 信托渠道突然收紧房企命脉告急
This means that after overseas bonds were halted, developers through the trust company financing this important channel also suffered tightening.

Wall Street on Monday mentioned that trust financing is the main financing of housing loans in addition to bank loans, with the main financing channels have been limited real estate, real estate trust business quietly warming.

"Economic Reference" quoted data pointed out that this year, 68 trust companies issued a total of 326 real estate trust products, the cumulative financing for housing enterprises 100.55 billion yuan; May real estate trust issue is still "increasing." Up to now, May housing prices through the issuance of collective trust fundraising project has reached 11.37 billion yuan. May 13 to May 19 of the week, a total of 24 trust companies issued 39 sets of trust products, the number of shares increased by 11, an increase of 39.29%. Among them, 10 for the real estate projects.

...Wall Street.cn mentioned at the beginning of the month, since the beginning of the year, Vanke and R & F and other housing prices have canceled the debt, involving the amount of at least 50 billion yuan. The two companies in the cancellation of the announcement said that in view of the recent changes in the market, decided to cancel the issuance of medium-term notes, Vanke more twice to cancel the issue of medium-term notes.

In fact, the plight of developers emerged in the fourth quarter of last year. Hai Tong Securities analyst Jiang Chao, Zhou Xia and Zhu Yixing in the report pointed out that the quarterly real estate bond issuance and net financing was only 30% of the third quarter, mainly due to the tightening of corporate bonds. From November last year to the end of February this year, real estate corporate bonds issued only 29.
Tightening of credit revived the trust sector loans to real estate, hence the crackdown.

DW: How dangerous are China's shadow banks?
"There are indications that regulatory measures to curb system-wide leverage show unintended consequences; specifically, in reviving 'core' shadow banking activities that had previously been constrained by regulation," said George Xu, Associate Analyst at Moody's Investors Service.

Moody's said borrowers in sectors such as property, local government financing vehicles and industries struggling with overcapacity faced reduced access to traditional bank loans and were being driven to trust loans.
We've seen this all play out before, in 2013 and 2014. Right after the Taper Tantrum in the U.S. came China' cash crunch. From June of 2013 through all of 2014, there was an attempted deleveraging. The result was falling home prices, panic, and the final massive monetary emission in early 2016. Now we're back to seeing a crackdown, complete with signs of periodic cash crunches such as in March. What's different from 2013 is the scale of the problem and the severity of the crackdown. The commodity, real estate and currency market declines from 2014-2016 will be dwarfed by what follows.

2017-05-23

Bankers Implement Strictest Liquidity Controls Ever, Tell Branches "Protect Yourself"

Bankers are reigning in lending and hoarding capital as banks' cost of capital exceeds loan rates. Bankers are even delaying loan disbursement unless customers accept punitive hikes in loan costs. Banks are hoarding capital, with tight credit expected in June (MPA assessment), July (WMPs coming due) and even as far out as September (quarter end).

The article below interviews bank president Mr. Zhang, who has approved 2 billion in loans but refuses to release the funds. He tells the customers wait a little longer, but the funds are never coming unless the customer takes his hint that the cost of funds will soar.
Zhang is a member of the assets of 200 billion yuan level of the city branch of a branch of the vice president, in charge of corporate finance. It is his duty to maintain a good group of companies with a high profile contribution, but now that the loan business has given way to the second quarter of the macro-prudential assessment system (MPA) Has been dubbed the "debt shortage" of the tight liquidity trend, so that the price of capital is steep rise in the spread, so that the head office "under the death order" liquidity control.

"Bringing in capital is the top priority." Zhang told the first financial reporter, the head office has just released what they call the "history's most stringent" liquidity control program. All business units, all branches should defend themselves.
Bankers are refusing to lend to big real estate borrowers even if loans are approved. They're also telling them they can rollover their debts, but after collecting payments, refuse to lend. Later in the article, Zhang says he's received a loan quota and cannot exceed it. Effectively he cannot loan, and if the number drops, he needs to find some way to raise capital or cut lending.
If there are still funding gaps, but have to give the loan, how to do? Zhang is not frustrated to tell the first financial journalists, in accordance with the spirit of the head office, the cost of this loan will be "punitive" to add 200 basis points.

"If the cost bank capital is 5%, and this goes up again by 200 basis points to 7%, now a one-year loan was 4.35%, even if rate is hiked 50% I'm still losing money."

SHIBOR rose higher on Tuesday, climbing above the prime rate, and it's now approaching the central bank's 1-year rate.

Money isn't very tight at the moment, but bankers are hoarding capital in preparation for the MPA in June, and expect tight conditions in July and again at the end of September.
Originally, Xiaopeng they are only in the row of assets and liabilities positions under the baton, ahead of hoarding money. In other words, the tight is not the moment, but for the future will be "lack of food" is expected - 6 at the end of the year to deal with the MPA assessment, in July Xiaopeng where the bank has a group of financial maturity, the end of September liquidity Gap is not small.

You can imagine, to each point in time assessment, overnight, 7 days the price of the species is certainly more cost-effective, or even grab not, of course, Xiao Peng they will now have the first medium-term funds locked up.

And all this foreshadowing, that is, the first two years, with a number of small and medium banks as the backbone of the expansion of the table.

Waterfall is coming out. A joint-stock bank strategy researcher told the first financial journalists, from a number of bank off-balance sheet assets and liabilities, due to the existence of time mismatch, when the lever from the capital side, and the asset side "continued leverage" and strong Of the inertia, so the industry "shrink table" two pressure, this period will be mismatched.

It is also worth noting that "some banks have a long period of long-term bond assets Fukui, because the report is still in the 'hold expired' item, the outside can not be observed." For such assets, banks also need funds Continued

"To talk about it, or just against the pressure, or asset quality problems." "Debt shortage", the funds from the tight, watching the financial management (mainly refers to the non-guaranteed financial management) is about to expire, South China an industry business developed a small bank head office management said that this is he will face the "chest broken stone."
iFeng: 银行行长面临大考不敢放贷:总不能让我“倒贴”

ZH: "This Is Probably Just The Beginning" - Chinese Banks Are In Big Trouble
With the crackdown on financial system leverage underway, Chinese banks (and securities firms) are in big trouble. As we noted previously, China's bond curve is inverted, yields are surging, and Chinese regulatory decisions shutting down various shadow-banking pipelines has crushed securities firms' stocks. However, as Bloomberg points out, as China’s deleveraging efforts cut into banks’ profit margins, rising base funding costs and interbank credit risk concerns have pushed banks' cost of borrowing beyond the rate they charge customers for loans for the first time in history.

So Much for the Rally: ChiNext Hits New 52-Week Low

Two weeks ago there was a glimmer of hope in the markets after the PBoC and regulators issued a joint statement that sounded dovish. Although they pledged to increase coordination, financial deleveraging continues. The hoped for bounce in the ChiNext is gone as the index hits new post-2015 lows. More losses could come given valuations and the analog of the Nasdaq 2000 bubble.

SCMP: ChiNext stocks rebound at double the rate of benchmark, but investors see short-lived rally
The ChiNext index is valued at about 63 times the median PE ratio, well above the 40 threshold considered as the safety margin, while the Shanghai Composite is close to the multiple of 30 times which is perceived as the dividing line between safe and risky, Xun said in a research note.

The ChiNext board has been falling out of favour among investors after the stocks led a crash in mainland equities in 2015 following the regulatory clampdown on margin trading funded by illegal non-brokerage institutions. Trading has been lacklustre since then, with daily turnover down almost 70 per cent from the all-time highs in 2015.

The recent rally appears to be driven more by technical factors than fundamentals, as it followed the index’s decline to a level lower than the nadir in 2015, prompting some buyers to believe the market was over-sold and would see a quick rebound.

Social Mood at the Movies

Social mood is relatively positive at the moment, so the only blockbuster delivering at the box office in 2017 is an action comedy.

Hollywood Reporter: Summer Box-Office Blues: Revenue Down 10 Percent So Far From 2016
Director James Gunn's Guardians of the Galaxy Vol. 2 — with its gaggle of quirky superheroes — is the only summer 2017 tentpole to live up to the hype so far. Over the weekend, the Disney and Marvel superhero sequel grossed $35.1 million in its third outing, not that far behind the disappointing debut of Ridley Scott's Alien: Covenant.

Launching to a lackluster $36 million domestically, Alien: Covenant is the second big-budget movie in a row to disappoint after King Arthur: The Legend of the Sword, helping to contribute to an early summer revenue box-office decline of 10 percent compared with 2016 and 20 percent compared with summer 2015, according to comScore.

There's still plenty of time to make up ground, but Hollywood is on high alert.

"The thing is, we already know August is pretty lean this year, so studios have to make it up elsewhere in June and July. That will put a lot of pressure on original films like Wonder Woman and Christopher Nolan's Dunkirk to succeed," says box-office analyst Jeff Bock of Exhibitor Relations.

"I think whether or not we turn things around is extremely dependent on Memorial Day weekend," he continues. "Last year was a pretty big disappointment with Alice Through the Looking Glass and X-Men: Apocalypse. Hopefully, Pirates of the Caribbean: Dead Men Tell No Tales and Baywatch will performer stronger this time around."
Both of those movies should do well given current social mood.

2017-05-22

SHIBOR Approaches Prime Rate


The Standard: Shanghai interbank rate at two-month high
The one-year Shanghai Interbank Offered Rate rose to 4.3024 percent yesterday, up 0.99 basis point from the previous day - the highest in two months.

It is also the first time one-year SHIBOR climbed above the one-year prime loan rate of 4.3 percent.

One-year SHIBOR has been on the uptrend for a month, and has risen about 10 basis points so far. Meanwhile, five- month SHIBOR adjusted downward slightly, but rates for mid-to-long term are still on the rise. The three-month and six-month SHIBOR maintained their inverted status with one-year SHIBOR since the beginning of this year.
Merchant's Bank asks, "Is this the start or the end?"

iFeng: SHIBOR和贷款利率倒挂说明什么 开始还是结束?
On May 22, the Shanghai Interbank Offered Rate SHIBOR offered a one-year offer of 4.3024%, the highest one-year, more than 4.30% of the Shanghai interbank market's one-year loan base rate (LPR) The central bank's one-year loan rate of 4.35% is only one step away.

It is noteworthy that interbank deposits offer and interbankal one-year pledged repo rates have been on top of LPR, and the internal capital cost of banks has been generally higher than the benchmark interest rate.

SHIBOR and loans upside down, means that the bank will gradually push the pressure to the real economy, the real economy financing costs continue to rise, the economic downward pressure to increase.

...Merchant Securities: Shibor over LPR, start or end?

The LPR interest rate on behalf of the real economic financing needs and the upside down on behalf of the financial market financing costs indicate that "deleveraging" is only present in the financial system, especially the "contraction", which has not yet been delivered to the real economy.

With the "scale" to continue, the interest rate system once again "abnormal". 1-year Shibor (interbank lending) for the first time over 1 year LPR (loan benchmark), taking into account the offer line is a large bank, the departure between the two seems to reflect the debt and assets between the "spread" upside down , But can not just look at the surface, after in-depth analysis we believe that the following conclusions:

1) The change in interest rates reflects the "marginal" cost difference between commercial bank liabilities and assets. The same period of time Shibor and LPR appear upside down, which means that liabilities (mainly interbank liabilities) are tightened at the margins, while asset ends (credit assets) remain marginal and loose, the former associated with the industry "contract", the latter with the real economy Weak demand, which is in line with the current situation: supervision "to leverage" and the cycle of "illusion" burst.

2) the margin of assets and liabilities "negative" negative, does not mean that banks will shrink the table. First, the spread between the two is not large enough, the marginal "spread" negative value does not necessarily mean the average "spread" is negative, the bank still has the power to expand the assets; second, the same industry liabilities accounted for the overall liabilities Is not high (about 5% of deposits), so the marginal increase in the cost of interbank liabilities is not necessarily higher than the average cost of overall debt; Third, non-standard asset interest rates are still low, because the debt-side interest rate is not the end of the asset The pull of the yield, asset-liability mismatch brought about by the rigid debt gap is likely to be the main reason for the debt-rate rise.


3) Shibor over LPR, probably just started. As long as the average interest rate of the asset exceeds the average cost of the debt and there is no exit mechanism (the bank will not collapse), the commercial bank will rely on the "scale" to hedge the "spread" narrowing until the asset average interest rate is lower than the average cost of the debt. As commercial banks continue to increase the "relative supply" of credit, the interest rate of credit will be further upside down with the interest rate level of financial markets (non-standard transitions will also lead to the "real" risk of credit), and Shibor and LPR The spread will be further expanded.

The LPR interest rate on behalf of the real economic financing needs and the upside down on behalf of the financing costs of the financial market indicate that "deleveraging" is only present in the financial system, especially the "contraction", which has not yet been delivered to the real economy. Two possibilities:

The first is the real economy "to leverage" large-scale emergence, resulting in substantial increase in the cost of real economic financing, economic growth once again bottom, then the financial market "deleveraging" is likely to end, capital costs and bond rates may fall ;

The second is the real economy is still "stable lever", the credit average financing costs remain stable, the financial market "deleveraging" will continue to the debt gap so that the financial market triggered a liquidity crisis, local clear will lead to "leverage "A one-time decline, thereby easing the financial market liquidity pressure.

Combined with real estate, commodities and the stock market trend, we believe that the probability of the first case is higher than the second case.

32 Cities Have Selling Restrictions

iFeng: 全国32个城市楼市“限售” 调控效果比房地产税厉害?
According to the Centaline Property Research Center statistics show that the 32 "restricted sales" cities are: Chengdu, Xiamen, Fuzhou, Qingdao, Hangzhou, Guangzhou, Zhuhai, Huizhou, Yangzhou, Changzhou, Changle, Minhou, Xushui, Qidong, Baigou, Sanya, Qionghai, Jiaxing, Chengde, Baoding, Beijing (Baoding, Beijing, etc. are part of the restrictions), Haikou, Dongguan, Xi'an, Jinan, Zhengzhou, Gaobeidian, Wuhu, Kaifeng, Nanjing, Wuxi, Changsha.

ChiNext Analog