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GREECE- 28 of June an important date…


STRATEGY

- Yesterday, the credit markets undid all of the tightening attained on Tuesday; the FinSub closed 18bp wider, the FinSen 9bp wider.

- Despite the latest news of expanding the EFSF’ lending capacity, the fact that the ESM will not rank senior to other creditors, and the easing of Germany’ discourse on private sector involvement in the Greek bailout, there are persisting doubts about the conditions that will finally be imposed for Greece to collect another €110-120bn. Reuters reports that European governments are pressuring their banks and insurers to accept a “voluntary” rollover of Greek debt when it matures.

- Specifically, there is speculation that the German, French and Dutch finance ministers have called a meeting with members of their financial sectors to discuss participation in the Greek bailout. In exchange for their support, Reuters reports that the German banks have asked for “additional incentives” in the form of government guarantees. A member of the Italian government has stated that the Italian banks are willing to roll over their exposure to Greek sovereign debt.

- In any event, the short-term risk is that the Greek parliament fails to approve the next packet of austerity measures (€28bn through 2015) next Tuesday (28 June). Even though Papandreou won the confidence vote on Tuesday (155 votes in favour, vs. 143 against), opposition leader Antonis Samaras said yesterday that his party will vote against. If Parliament does not approve the austerity packet, the EU/IMF will not pay out the fifth tranche of aid (€12bn) and Greece will default.

- Apart from Greece, attention in the financial sector yesterday focused on the Bankia IPO and the stress tests. Reuters reports that the CNMV will finally OK the Bankia offering prospectus next week, which will delay the IPO until 15 July, from the original date of 13 July (the same date the stress test results are expected to be released).

- In any event, there is every sign that Bankia will go ahead with the IPO, at a discount of 35-65%. That means a valuation of between €5.8bn and €8.5bn Bankia wants to place €3-4bn while enabling BFA to retain a majority on the board; therefore, the discount must be less than 60%.

- As expected, the FOMC minutes released yesterday at market close gave little additional information about reinvestment of maturing RMBS and Treasuries. As for growth prospects, the Fed revised downwards its forecast for 2011 from 3.2% to 2.8% and for 2012 from 3.85% to 3.5%.

- Market attention today will focus on the European Council meeting, which continues tomorrow, and will focus basically on: Trichet’ succession at the ECB, migration policy, and the Euro area’ economic stability. The Greek bailout and private sector involvement will foreseeably be discussed at the dinner