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business newsPre-Market Primer: Greece Inches Closer to a Bailout
By
Vincent Trivett
Feb 17, 2012 9:15 am
And this time, they mean it.
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The European Central Bank will be swapping its holdings of about 50 billion euros in Greek bonds in exchange for more Greek bonds. This is rumored to be completed by Monday. The new bonds will have the same nominal value, but with a special gift for the ECB. The new bonds contain collective action clauses that exclude the ECB from taking any losses in case the Greeks force involuntary losses on bondholders.
The Germans are still pushing for an escrow account to make sure that bailout money gets spent on repaying debt, rather than improprieties such as medicine or police salaries. Germany also nixed the the two-step plan proposed by the Netherlands and Finland. That plan would have lightened Greece’s debt burden just enough to pay bondholders in March and to pay out the rest of the bailout package after April's Greek election.
The Greek government also scrounged up the extra 325 million euros in budget cuts, making the austerity plan more acceptable to the Troika.
One casualty of the whole Greek debacle is the notion of pan-European camaraderie. The gap between the North and South is wider than ever. Greek protesters routinely burn German flags, and even buildings designed by German architects. Wolfgang Schaeuble, the German Finance Minister, referred to Greece as a “bottomless pit” multiple times. Also, investment in other peripheral countries of the euro might be discouraged by the collective action clause that subordinates private bondholders to the ECB.
Hopes that Greece will clinch the bailout lifted equities. Asian markets closed in the green with the Nikkei (^N225) up 1.58% and the Hang Seng (^HSI) up 1.01%. European markets all rose as well.
Inflation in the US rose less than expected in January after staying flat in December. The Consumer Price Index rose just 0.2% consensus of 0.3%. Over the last 12 months, prices rose 2.9% before seasonal adjustment.
US stock futures rose on the news.
- Dow (^DJI) futures rose 0.96% to 12,904.08.
- S&P 500 (SPY) futures rose 1.10% to 1,258.04.
- Nasdaq (^IXIC) futures were flat until the CPI data release, then jumped 1.51% to 2,959.85.
Bank of America (BAC) submitted the ‘plan B’ for major market shocks requested by the Fed last year. In an emergency, Bank of America will sell off its retail branches in Texas and its US Trust wealth-management unit.
Yelp revised its IPO filing, aiming to float 7.15 million shares for about $12-14 at its debut. According to the S-1 filing, Yelp lost $9.56 million on $47.7 million in revenue in 2010. Citigroup (C), Goldman Sachs (GS), Jeffries (JEF), Allen & Co., and Oppenheimer & Co. (OPY) are underwriting the IPO. Yelp will trade under the ticker YELP.
Twitter: @vincent_trivett
No positions in stocks mentioned.
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