In Historic “Self Bail-In” A German Bank Just Canceled Interest Payments On Two Bonds

One year ago, when Deutsche Bank was sliding on concerns about its bad loan book, Germany’s Bremer Landesbank which at the time had €29 billion in assets, saw its bonds plunge overnight when concerns emerged about an imminent failure by the German lender.

Back then the worry was that the bank’s extensive portfolio of nonperforming shipping loans would require either a bailout by a bank, with the name of majority owner NordLB cited, or a state rescue. It was a report by Germany’s Handelsblatt that unleashed the selling, and fear of another European bank failure, after it said that a bailout may not come: “shipping loans have brought Bremer LB into distress and the bank can not survive without government help, but a direct capital injection from Lower Saxony now looks unlikey.” Eventually, the crisis passed after NordLB took full control of Bremer LB last September, with concerns about its viability swept under the rug.

Fast forward to today, when moments ago in a historic development, the German bank again made headlines again after it said it would “strip”, or cancel the interest payment, on its most subordinated debt, impacting two Euro AT1 notes, the first such move by a German bank which effectively amounted to a partial “self-bail in.”

In a statement, the bank said “The Management Board of Bremer Landesbank decided to cancel, at the next Interest Payment Date, all payment of interest on the AT1 Notes forming part of the own funds”

With respect to the notes issued by Bremer Landesbank Kreditanstalt Oldenburg -Girozentrale- (“BLB”) as “EUR 50,200,000 Perpetual Non-cumulative Fixed to Reset Rate Additional Tier 1 Notes of 2015” (ISIN: DE000BRL00A4, WKN: BRL 00A) and as “EUR 100,000,000 Perpetual Non-cumulative Fixed to Reset Rate Additional Tier 1 Notes of 2015” (ISIN: DE000BRL00B2, WKN: BRL 00B) (together the “AT1 Notes”) forming part of BLB’s own funds the Management Board (Vorstand) of BLB decided today, by exercising its sole discretion pursuant to § 3 (8) (a) of the relevant terms and conditions of the AT1 Notes, to cancel all payment of interest on the AT1 Notes for the current Interest Period at the next Interest Payment Date on 29 June 2017.

Specifically, the bonds affected are the bank’s perpetual €50.2MM 8.5% and €100m 9.5% AT1 notes which will no longer pay a cash coupon starting June 29 payment.

In kneejerk response, the bank’s 9.5% junior bond fell 10% to trade at just over 80 cents on the euro on Tuesday. The 8.5% bond tumbed to 78 cents on the euro.

To be sure, one of the purposes behind such Additional Tier 1 (AT1) bonds under Europe’s EBRD resolution mechanism is to take losses at times of distress, such as what happened today in Germany. The only problem is that nobody saw it was coming. After all, Europe is said to be “doing better” than the US these days.

Investor concerns about such self-imposed “bail-ins” have been especially acute in recent weeks, following the collapse and bail-in of Spain’s sixth largest, at the time, bank Banco Popular which suffered a major bank run on concerns about its viability, prompting the government and ECB to put it into resolution and to be acquired by Santander for €1.

In some ways today’s move is more troubling as in the Banco Popular “bail in” losses were not imposed through a coupon cancellation prior to the bond write-down, suggesting that the facade of some of Europe’s more “stable” bank hide far more substantial balance sheet impairments than the market anticipates. With European stocks closed for the day, there has been no follow through yet to Bremer LB peers or other continental assets.

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Shanker to succeed Sarraf as CMD of ONGC

Shashi Shanker has been named chairman and managing director of state-owned Oil & Natural Gas Corp., India’s largest oil and gas producer, according to press reports citing the government’s Public Enterprise Selection Board.

Who Cares About the “Wealth Gap” if Everyone is Richer?

Via The Daily Bell

How many successful people can there be? It seems like, after every article you read these days, the author bio talks about a book they have written, an invention they created, a prestigious award or some other indicator of great success. Yet I’ve never really heard of most of them.

I used to get pings of jealousy when I would see descriptions like that of successful people; it almost felt like there were a limited number of “success” spots on planet earth, and if they were taking one up, it made it that much less likely for me to get one.

But it’s not true. There is no limit to the number of successful people that can exist, especially since everyone has a slightly different idea of success.

And in the same vein, there is no limit to how many wealthy people there can be. Wealth is not a zero-sum game, there is not some amount of wealth out there that once it is grabbed, is gone. Anyone can create wealth. Growing a garden is a great place to start creating the necessities to live and giving yourself a little food shortage insurance plan.

When people say the rich get richer and the poor get poorer, that is a huge misrepresentation of what is really happening, even if the rich have far more compared to the poor.

For example, let’s use the amount of healthy food that can be purchased as an indicator of wealth. If a “poor” person could once only afford 10 pounds of healthy food per week, and a “rich” person could afford 100 pounds, the rich person is ten times richer than the poor person. But now suppose a poor person can afford 100 pounds of healthy food per week, and a rich person can afford 2,000 pounds.

True, the wealth gap has doubled from 1-10 to 1-20, yet the poor person is living as richly as only the wealthy could in years past.

This is the true nature of the wealth gap. Almost everyone is better off these days. The gap doesn’t matter as much as the minimum standard of living.

The classic example which always comes to mind for me is of President Calvin Coolidge who lived in the White House fewer than 100 years ago. One of the most powerful people on Earth watched helplessly as his son died of an infected blister from playing tennis.

In that sense, everyone living in America today has a higher standard of living than the President and his family had 90 years ago. Advancements in medicine, technology, information, and production have risen the standard of living for everyone.

This chart shows the exponential nature in which people are being lifted out of poverty.

Poverty has not yet been entirely eradicated, but at this pace, as long as those in power don’t thrust the world back into the dark ages, it is only a matter of time until Earth is basically free from poverty.

And at that point, when all needs are being met, what does it matter if the richest person has 10, 50, or a thousand times more wealth than the poorest?

Options and a Backup Plan = Freedom

There was a time when the options for a person to create enough wealth to live were very few.

Do you want to live in a one room dusty, dirty, festering farmhouse and work the fields for 14 hours a day to scrape by in grinding poverty? Or do you want to live in a crowded apartment, and work in a dingy, smoky, stuffy factory for 14 hours a day and scrape by in regular poverty?

Not a great choice to have to make. Today that conundrum is disappearing from almost all lives on Earth. If the trend of eradicating poverty continues, it shouldn’t be long until everyone on earth has a better option to create wealth.

But unfortunately, governments and their crony deals with corporations are standing in the way of the quickest progress. They keep destroying the wealth in wars and misallocation of resources that would otherwise be spread through the ranks of the people.

A great place to start would be to actually allow people to keep the products of their own labor, instead of taxing it away, or writing laws and regulations which make it all but impossible to survive without bowing down to the corporate overlords.

This, of course, means respecting the honestly acquired wealth of the richest as well as the poorest. You can’t support the poor being freed to get ahead while simultaneously calling on the rich to be robbed to even things out.

Governments and corporations have indeed set up the world to make it hard to get ahead, and true justice would involve them paying damages to those they have wronged. But don’t believe that government power can be used to solve the problem that they created.

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Watch Live: Speaker Paul Ryan To Deliver “Major Speech” Calling For Permanent Tax Reform

In what is being hailed as a “major speech,” which means just about nothing to ordinary Americans living outside the D.C. bubble, House Speaker Paul Ryan is expected to call for permanent tax reform in 2017 in remarks to be delivered to the National Association of Manufacturers.  According to the Washington Examiner, Ryan will report that the GOP intends to introduce and pass a joint tax bill in the fall of this year.

“We are going to get this done in 2017. We need to get this done in 2017.  We cannot let this once-in-a-generation moment slip.”

 

“Transformational tax reform can be done, and we are moving forward. Full speed ahead.”

The @HouseGOP plan for tax reform will create more jobs & increase wages, putting American workers & families first. https://t.co/TgaUyqc4WJ

— Paul Ryan (@SpeakerRyan) June 20, 2017

 

One component of Ryan’s tax plan, the so-called border adjustment provision, has become very controversial even among his Republican colleagues. It has elicited fierce opposition from retailers and other industries that fear it would result in higher taxes on imported products. In effect, the border adjustment would work by exempting export sales from companies’ taxable income, but disallowing the deduction of the cost of imported goods from taxable income.

“While acknowledging that the particular mechanism must be sorted out with the administration, he will argue that we must fix the current incentive for American companies to move abroad, make things overseas, and then sell them back into America — which costs us jobs,” his office said. Ryan will also stress that the U.S. needs a more competitive tax system after years of being disadvantaged.

 

“We are actually unique in the world in the way we discourage capital from coming back to America and how we incentivize off-shoring jobs,” he’ll say. “This is not the kind of exceptionalism we should aspire to…We must think differently, so that once again we make things here and export them around the world.”

We will also eliminate many of the loopholes used by the wealthy and well-connected, helping to lower the tax rates for American families.

— Paul Ryan (@SpeakerRyan) June 20, 2017

 

Meanwhile, Republicans will have to pass their tax package via a continuing resolution to take advantage of their simple majority in the Senate, a procedural move that will prevent Democrats from blocking it. Under such a procedure, the tax package cannot add to long-term budget deficits. 

That said, in order to take advantage of the procedure, Republicans in the House and Senate must pass a budget resolution.  And while that may sound simple enough, the Republican party is bitterly split over spending levels for the military and various domestic programs.

Of course, major tax reform has been a key agenda item for Republicans for quite a while and only time will tell whether it is possible or, as John Boehnor would say, just a bunch of Republican “happy talk.”

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Exxon Moves Forward With Offshore Guyana Project

Phase 1 will produce 450 MMBO ExxonMobil (ticker: XOM), Hess (ticker: HES) and CNOOC today announced FID for Phase 1 development of the Liza field in offshore Guyana. Initially discovered in May 2015, the Liza field is located about 120 miles offshore from Guyana, in about 5,700 feet of water. Liza is in the Stabroek Area, a large offshore lease block owned by the three partner companies. Hess reports that Stabroek is 6.6 million acres in size, or 1,150 times the size of a standard GOM block. (Click to enlarge)Source: Hess 120 MBOPD peak production…

“Try Before You Buy”: Amazon Launches Assault On Clothing Retailers With Prime Wardrobe

On Tuesday, in its attempt to corner the last elusive space of the retail market – clothing –  Amazon announced the launch of Prime Wardrobe, “A New Fashion Platform” which will be included in current and future Prime memberships, Amazon said on its website. Essentially Prime Wardrobe will allow users to try clothes on before they buy and receive discounts.

This is how Amazon’s latest service, currently in beta, will work according to TC:

  • Buyers will pick at least three items from over a million Amazon Fashion options including clothes, shoes, and accessories for kids and adults to fill up your Prime Wardrobe box. Brands available include Calvin Klein, Levi’s, Adidas, Theory, Timex, Lacoste, and more.
  • Once the Amazon Prime Wardrobe box arrives, you can try on the clothes for up to seven days. Then you either schedule a free pick-up or drop the resealable box with its pre-paid shipping label at a nearby UPS to return whatever you don’t want. Keep three or four items from the box and get 10% off everything, or keep five or more for 20% off. You only pay after for what you keep, with no charge up front. Amazon Prime Wardrobe is free for Prime members with no extra fees.

While we can see extensive ways how this “goodwill” arrangement between Amazon and its millions of clients can be abused, the logic behind the new launch is simple: by taking the hassle and regret out of returns for clothing, the same way Zappos did before it bought it, Amazon hopes to make people more comfortable pulling the trigger on an online apparel purchase, especially when including the bonus discount. Meanwhile, a poor choice only costs you a trip to UPS. The move could be quite lucrative for Amazon, as apparel’s share of all digital spend has grown for the past three years straight from 15.4% in 2013 to 17% in 2016, according to comScore.

Unlike similar services, such as Stitch Fix and other fashion delivery services where you are shipped a box of clothing you don’t choose which is targeted at people who don’t like shopping (especially men) Prime Wardrobe allows customers to pick and choose what they want rather than delivering a random grab bag. Tech Crunch muses that if Wardrobe tests well, Amazon would consider acquiring Stitch Fix, TrunkClub, or another boxed fashion delivery service to instantly boost its scale.

Prime Wardrobe will also aligns with the Amazon Echo Look that takes full-length photos of you to review your day’s clothing choices and uses the Amazon StyleCheck app feature to have AI score your fashion decisions. In other words, Jeff Bezos will first help you pick your clothes for you, and then sell them.

Eventually, Prime Wardrobe will also integrate with the Amazon Fashion vertical that features upscale clothing.

As Jeff Bezos said a decade ago, “In order to be a $200 billion company we’ve got to learn how to sell clothes and food.” Of course, while central banks have helped Amazon surpass this particular bogey long ago, nailing the clothing ecommerce experience which has been rather elusive for the online retail giant will further expand Amazon’s monopoly on the complete retail experience. Which is all great news for AMZN shareholders, it is terrible news for existing clothing retailers who will suffer even greater sales and margin erosion, leading to more store shutdowns, and even more bankruptcies.

As a reminder, according to Moody’s here is a list of the most distressed US retailers…

… and the carnage, as discussed recently, has already resulted in a record number of annualized store closures. This number is set to explode if Amazon’s new offering gains traction.

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