Shifting bad consumer & business debts from banks to the public, but the way this bank bailout got packaged is pretty nifty.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Turkish President Recep Tayyip Erdoğan has launched a raft of measures ostensibly designed to reanimate the economy, including offering direct financial support for people with credit-card debt. The plan will enable Turkey’s maxed-out consumers to go to the biggest state-run lender, Ziraat Bank, and apply for debt rescheduling at low rates of interest. “Any retail client from any bank can apply,” Erdogan said.
Credit-card debt is a major problem. Since 2010 consumer credit has increased almost five-fold on the back of low interest rates (at least in certain foreign currencies), government incentives,

They’re already under pressure from the deteriorating market.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Honda, the fourth largest car producer in the UK, has unveiled plans to halt its UK production for the first six days of April in order to stockpile parts in the immediate aftermath of Britain’s exit from the EU. The announcement came on Thursday, the same day that UK Premier Theresa May met her Japanese counterpart Japanese Prime Minister Shinzo Abe to discuss Brexit-related issues, and reads as follows:
“Honda of the UK Manufacturing Ltd has been assessing how best to prepare for any disruption caused by logistics and border issues following the UK leaving the EU on 29 March 2019.
“To ensure Honda is well paced to adjust to all possible outcomes, we are

Well, that didn’t take long. And whatever happened to the Eurozone’s new bail-in rule?
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Italy’s government, in its eighth month in power, has already bailed out a bankrupt bank, mid-sized Banca Carige, with public funds. If approved by European Commission and the ECB, it will be the fourth Italian bank rescue in just over two years. As Italian daily Il Sole 24 Ore points out, Italy’s populist government has adopted virtually the exact same playbook to save Carige that was used by its predecessor in the previous three resolutions:
The draft of the new Carige decree is a carbon copy of the one used by the Gentiloni Government for the bailouts of Monte dei Paschi di Siena (MPS), BPVI and Veneto Banca — identical in every

The stakes are enormous.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
With just 80 days remaining until Brexit Day, March 29, nerves are fraying on both sides of the English Channel. Nowhere is this more true than in the City of London where the Square Mile’s dominance of the global financial industry faces its biggest threat in decades. In the City’s worst-case scenario — a crash-out Brexit on March 29 — London-based firms that have not prepped properly for this outcome could be cut off from the continent altogether.
Since moving key operations and staff across the channel is a costly, complex, timely undertaking, many companies have preferred to play a waiting game. But the clock continues to tick down, and as the risk of a disorderly exit grows, inaction is

“We’re not just talking about the theft of oil, but about a plan involving government insiders and a complex distribution system. It’s not easy to distribute and sell the pilfered contents of 600 pipelines each and every day.”
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Mexico’s new government has launched a multi-pronged offensive against the rampant oil theft that is costing state-owned oil company Petroleos Mexicanos (Pemex) billions of dollars a year and destabilizing entire swaths of the country. Upon its orders, around 4,000 federal police agents, soldiers, and marines will be posted to protect 58 Pemex facilities, six refineries, 39 supply terminals, and 12 pumping stations.
The government will also launch an investigation of civil servants and managers of

Rampant unaffordability and a slew of other reasons.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
In the fourth quarter of 2018, prices in prime regional housing markets in England and Wales fell by 0.9%, according to global real estate agency Knight Frank. For the whole year, priced dropped by 0.6%, compared to 2017. The rate of annual price growth in the prime country market has averaged less than 1% since mid-2016, compared to almost 3.5% between 2014 and 2016, with peaks as high as 5% in 2014. Something isn’t working anymore:

By a different measure, across the UK as a whole, house price inflation slipped to just 0.9% in the year to November, according to a survey by LSL Property Services/Acadata that is based on every residential property transaction in England

Companies feel the pain as euro junk-bond yields more than doubled from a year ago.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
To the white-knuckle end, 2018 has been a terrible roller coaster ride for Spanish supermarket chain Dia, once one of Europe’s biggest grocery chains. The firm’s shares, reduced to a penny stock — despite the 22% surge today to €0.44 — have plunged 90% since January. During the same period, the company has issued no fewer than three profit warnings. Its credit rating was slashed to junk in a matter of weeks. To top it all off, two weeks ago, Dia suffered the ultimate ignominy of being ejected from Spain’s benchmark index, the Ibex 35, for being worth too little, to be replaced by a pulp mill called Ence.
As the pressure rises, the company’s

No one knows what’s going to happen.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Vehicle manufacturing in the UK slumped by 19.6% in November compared to the same month of 2017, amidst rising fears about a no-deal Brexit as well as slowing sales in the world’s largest automotive market, China. With around 30,000 fewer cars produced, it was the biggest year-on-year fall of any November since the financial crisis of 2008, when output shrank by more than 32%.
The industry has now racked up six consecutive months of falling production, according to the industry group, the Society of Motor Manufacturers and Traders (SMMT). Year-to-date, total car production in the UK is more than 8% lower than it was in the first 11 months of 2017. If anything, the trend appears to be

Soaring rents outran tenant wages, which can’t last.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Spain’s residential rental market has been on a bit of a roll of late. Over the last 45 months, median rents have risen year-on-year in all but one of them: August 2018. In the hottest markets, such as Barcelona, Madrid and the Balearic Islands, rents are now higher than they were even at the dizzying peak of Spain’s madcap real estate boom. But the boom may be coming to an end.
In November, median rents fell 0.5% from October, according to the real estate agency Fotocasa. On a year-by-year basis, rent increases eased to a meager 0.6%. Note the year-over-year gains of around 10% in 2017 (chart via Fotocasa):

“The Fotocasa Price Index continues to show a clear tendency

After “the worst-on-record unbelievably bad” November, even e-commerce gets hit, not just brick & mortar, on fears Christmas sales could be terrible. 
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
With just one week left before Christmas, Europe’s fashion retail sector is showing little sign of yuletide cheer. On Monday, the shares of UK-based online fashion and cosmetics retailer Asos Plc plunged 37% to £26.14 after the company warned that Christmas shopping on its web platform had got off to a disastrous start. The stock rout, the company’s worst in almost five years, wiped more than £1.4 billion of its value and raises fears that Europe’s high street malaise may be spreading from bricks-and-mortar stores to e-commerce. Since its peak in January 2018, shares the

But will the big banks play along?
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
On Friday the ECB launched, with minimal fanfare, a brand new system aimed at enabling banks to settle payments instantaneously across Europe, helping them to compete with PayPal and other global tech giants. Developed in little over a year, the ECB’s not-for-profit TARGET Instant Payment Settlement (TIPS) system will let people and businesses in Europe transfer euros to each other almost instantly, at extremely low cost, and irrespective of the opening hours of their local bank.
The first ever payment via TIPS took place on Friday between a customer of Spain’s CaixaBank and one of French bank Natixis. The payment went through in a matter of seconds.
“In launching TIPS, the Eurosystem is

With perfect timing as the new government embarks on restructuring Mexico’s oil industry.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Mexico’s embattled oil giant Pemex has almost tripled its estimate of the potential reserves offered by Ixachi, a recently discovered onshore oil field in Veracruz. The field, located to the south of the major port city of Veracruz, was discovered in November last year, when its 3P reserves (proved, probable and possible) were estimated at 366 million boe (barrels of oil equivalent).
At the time of the discovery the company asserted that the field could hold far more reserves. On Tuesday it revised the figure to over 1 billion boe after drilling two new wells. The new estimated total value of the field is $40 billion. If the estimate

A lot of money is at stake.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Wall Street mega-landlord Blackstone is once again making its presence felt in Spain, which represents about one-fifth of its global property empire. During the Q&A session of a recent breakfast meeting organized by the American Chamber of Commerce, the senior advisor of the group’s Spanish subsidiary, Claudio Boada, confronted Spain’s Minister of Economy and Business, Nadia Calviño, on the government’s plans to reform Spain’s renting laws in an attempt to slow down the pace of rising rents.
Of particular concern to the private equity colossus is the government’s stated goal of extending the minimum duration of rental contracts from three to five years for private individuals and from three to

Mexico is #1 silver producer in the world, #2 gold producer in Latin America, and a major copper producer.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
For a president who hasn’t taken office yet and whose government is still in waiting, Mexico’s Andres Manual Lopez Obrador (AMLO) has managed to ruffle a lot of very important feathers. First, he scrapped the country’s most lucrative infrastructure project, a partly built airport for the capital that was expected to generate billions of dollars for many of the country’s richest companies, banks and families. Then, two weeks ago, his National Regeneration Movement (MORENA) party proposed a bill that directly threatens one of the banks’ core businesses: fee gouging. Since then, billions of dollars have been wiped off

“Who will purchase the €275 billion of government debt Italy is to issue in 2019?”
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The ECB, through its army of official mouthpieces, has begun warning of the potentially calamitous consequences for Italian bonds when its QE program comes to an end, which is scheduled to happen at the end of this year.
During a speech in Vienna on Tuesday, Governing Council member Ewald Nowotny pointed out that Italy’s central bank, under the ECB’s guidance, is the biggest buyer of Italian government debt. The Bank of Italy, on behalf of the ECB, has bought up more than €360 billion of multiyear treasury bonds (BTPs) since the QE program was first launched in March 2015.
In fact, the ECB is now virtually the only significant net buyer of

After years of dodgy accounting and mismanagement.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The past five days have been brutal for two once-emblematic Spanish companies, Abengoa and OHL. Four years ago, the two firms were among the 35 largest listed companies in Spain. OHL was a global construction colossus that was involved in one of the world’s most ambitious and infrastructure projects, the high-speed railway line between the Saudi Arabian cities of Mecca and Medina.
Abengoa was a world leader in the renewable energy sector, with operations across the globe. But it grew so fast and took on so much debt that it needed to hide many of its liabilities. Like Enron, it could not keep the game going on for long, and in 2015 it collapsed under the weight of its own

In the feverish reshuffling of financial services for a post-Brexit world, London still comes out ahead, but less so.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
As two years of Brexit negotiations finally come to a head and all eyes are on British Prime Minister Theresa May’s frantic efforts to get the draft deal passed, France is making a big move on the City of London’s gold market. As Reuters reported Monday, the Bank of France has partnered with mega-bank JP Morgan Chase, one of the world’s largest bullion trading banks, to offer global central banks and sovereign wealth funds the full gamut of swaps, leases, and gold deposits.
Sylvie Goulard, the Bank of France’s deputy governor, recently wrote in The Alchemist, the in-house journal for the London Bullion

The company with 70,000 employees is “circling the drain.”
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
When UK construction giant Carillion collapsed in January, it shook the foundations of Britain’s outsourcing industry to its core, casting a harsh light on the high-growth, thinning-margin, poor cash-flow, high-debt business model that has come to dominate the sector. It was the country’s biggest corporate bankruptcy in years. But now another outsourcing firm may be about to follow Carillion’s doomed footsteps.
That firm’s name is Interserve. It employs over 70,000 people worldwide, with around 20,000 employees based in the UK. On Monday its shares plunged over 30% to 30 pence a piece, their lowest level in 30 years, before rebounding somewhat. They’re down 95%

Part of a global trend, as exasperated consumers are squealing, but no country has threatened to do what Mexico proposed.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Mexico’s stocks are plummeting, with the S&P/BMV IPC index down 5.8% on Thursday — the worst drop in seven years — and another 2.8% by midday on Friday. The dollar-denominated ETF, iShares MSCI Mexico [EWW], plunged 11% over the past three days and is down 22% since August 8:

What happened? Mexican stocks, which had been caught up in the sell-off in October and the cancellation of the mega-airport and corruption project at the end of October, bounced a little in November, but then took another hit on Thursday when a senior Mexican senator from the president-elect’s party proposed a bill that would ban

City of London Just Lost a $240-Billion-a-day Financial Market.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The City of London was just dealt its biggest Brexit-related blow following an announcement by American financial markets operator CME Group that it is shifting its European market for short-term financing, the largest in the EU, out of London to Amsterdam. Worried about the dense fog of regulatory uncertainty hanging over London’s future, the firm wants to ensure that its continental clients can continue using its services even in the event of a no-deal Brexit in March.
The decision was apparently taken before CME’s acquisition of BrokerTec — as the company is known — from NEX Group PLC was given the green light by UK market regulators last week. It is the

There’s nothing like a sympathetic Supreme Court.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Spanish bank stocks had their best day’s trading for months on Wednesday, with the MCE Bank Index rising by 2.6%. At one point the stock of interminably troubled Banco Sabadell had soared over 13%, before settling to finish the day up 2.5%. The reason for such market exuberance was perfectly rational: After two days of deliberation, 28 Supreme Court judges on Tuesday evening voted by a thin margin (15 to 13) to strike down a previous ruling by a different set of Supreme Court judges that would have hurt the banks’ lending business by forcing them, rather than mortgage borrowers, to pay the contractual tax on mortgage loans.
It’s the first time in the Supreme Court’s history

Mexico supplies 45% of global sales, but this is Mexico.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Mexico is the world’s largest supplier of avocado. “Green Gold,” as Mexicans call their beloved staple fruit and lucrative cash crop, accounts for around 45% of global sales. Over two-thirds of those avocado are grown in the state of Michoacán. But in widespread industrial action over the weekend, more than two-thirds of the state’s avocado orchards were on lock-down and many of the roads used to transport the produce were blocked as growers accused packing firms of using inferior quality, lower priced produce from other regions to ship to the US market.
Michoacán growers are the only suppliers included in the US Department of Agriculture certified export program,

But new high-end towers will continue to flood the market.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
After decades of mind-boggling growth, home prices in metropolitan London, according to official numbers, started to fall this year, if barely. Between March and September, they slid 2.3%. But it’s a lot worse in the most expensive parts of the city: Prices in central London have already dropped 15% since 2014, according to James Hyman, head of the residential agency division at Cluttons. He expects another 7% drop over the next year and a half. And the total volume of transactions has fallen by a fifth, according to Residential Analysts.
In 2014, a change in the stamp duty made buying high-end homes in the UK more costly. In London, the city that hosts the highest

A “fraud on the people.”
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The UK government has finally called it quits on its much-abhorred Private Finance Initiative (PFI), which for over two decades allowed bankers and financial consultants to gorge on massively inflated interest rates and fees for run-of-the-mill infrastructure projects, while saddling taxpayers with debts they will struggle to repay.
“I have never signed off a PFI contract as chancellor and I can confirm today that I never will,” said UK Chancellor of Exchequer Philip Hammond during his 2018 budget address. “I can announce that the government will abolish the use of PFI and PF2 for future projects.”
The United Kingdom is widely considered to be the birthplace of the modern incarnation of the

The French megabanks are on the hook.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
France was just served with a stark reminder of an inconvenient truth: €277 billion of Italian government debt — the equivalent of 14% of French GDP — is owed to French banks. Given that Italy’s government is currently locked in an existential blinking match with both the European Commission and the ECB over its budget plan for 2019, this could be a big problem for France.
On Friday, France’s finance minister, Bruno Le Maire, urged the commission to “reach out to Italy” after rejecting the country’s draft 2019 budget for breaking EU rules on public spending. Le Maire also conceded that while contagion in the Eurozone was definitely contained, the Eurozone “is not sufficiently armed to

Now everything is up in the air, so to speak.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The results are finally in from one of the most controversial voting exercises ever held in Mexico. The people — albeit a tiny fraction of the whole electorate — have voted to scrap a new $13-billion airport for the capital that is almost one-third finished, at least $4 billion over budget, and mired in allegations of corruption and lack of transparency, dealing a hefty blow to some of Mexico’s richest business leaders, foreign construction companies, and the global lenders that have helped finance the project.
Roughly a million people, just over 1% of Mexico’s electorate, participated in the four-day voting exercise. They were asked whether the next government should finish

Cash is less of a threat to central bank policies when interest rates rise above zero.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Sweden’s Riksbank has become the first central bank in the 21st century to take concrete measures to ensure that cash does not disappear as a means of payment from the financial system. To that end, the Riksbank proposes, in a document published on its website, to make it mandatory for all banks and financial institutions to offer cash services.
The pronouncement comes in response to a recent policy suggestion by the Riksbank Committee that only the country’s six major banks should be obligated to continue offering cash services.
That prompted a backlash from Sweden’s competition watchdog, which argued that the plan would distort

A fiasco threatens to spiral out of control.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
In the last five trading days, the shares of Spain’s five largest listed banks have re-energized their plunge that had started at the end of January and now amounts to 40%. The cause for the recent drop? A shock ruling by Spain’s Supreme Court that lenders, rather than mortgage borrowers, should pay the contractual tax on mortgage loans, on the grounds that the lender is the only party with an interest in getting the loan certified by a notary, since this is what enables the bank to begin foreclosure proceedings if the borrower defaults on payments.
Even the Supreme Court’s desperate decision last Friday to suspend its own ruling a day after it had announced the ruling, a

But it’s going to be tough; he’ll need more than luck to pull it off.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Moody’s has rated the $2 billion of senior unsecured notes due 2029 that Mexico’s state-owned oil company Pemex is in the process of issuing one notch above junk. Pemex is offering to pay a coupon interest rate of 6.5%. In its report on Friday, Moody’s blamed the company’s “weak liquidity, a heavy tax burden and the resulting weak free cash flow, high financial leverage and low interest coverage; and challenges related to crude production and reserve replacement.”
Moody’s is also worried about the large amounts of debt coming due in 2020 and beyond. And Pemex will continue to be “dependent on debt capital markets to fund negative free cash flow,” it

A cashless society could have “adverse collective outcomes.”
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
In recent months, a slew of political and financial institutions have raised concerns about the march toward a cashless economy. They include:
The ECB warned that a phase-out of cash could pose a serious risk to the financial system. Depending too heavily on electronic payment systems could expose financial systems to catastrophic failures in the event of power outages or cyber attacks. The European Commission has also backed off is war on cash.
The People’s Bank of China announced that all businesses in China that are not e-commerce must resume accepting cash or risk being investigated, and cautioned businesses against hyping the “cashless” idea when promoting