The EBAs Board of Supervisors today made a preliminary assessment
of banks capital plans submitted in response to the EBAs
recommendation on recapitalisation. Their review highlights that, in
aggregate, the shortfalls are expected to be met primarily through
direct capital measures. The measures are not viewed as having a
negative impact on lending into the real economy. The Board of
Supervisors also agreed that, in the context of the ongoing
recapitalisation exercise, the EBA would undertake its next EU-wide
stress test in 2013.

The Board of Supervisors undertook a preliminary overview of the
proposed measures highlighting the following:

The total actions give a capital surplus of approximately 26%,
creating some leeway in case some actions do not materialise.

The actions predominantly focus on direct capital measures which
account for 96% of the capital shortfall and for 77% of the total amount
of actions proposed. The majority of these are capital raising, retained
earnings and conversion of hybrids to common equity. Measures impacting
risk-weighted assets (RWAs) account for the remaining 23% of total
amount of actions.

After taking account of the measures arising from EU State Aid
decisions on banks restructuring or other country programmes, the impact
of actions reducing lending into the real economy would be less than 1%
of the total amount.

An aggregate description of the capital plans is provided in the
annex.

Next steps

The Board of Supervisors has not yet assessed the viability of the
plans. In-depth analysis of these will be undertaken by National
Authorities in close cooperation with the EBA and other relevant
authorities in Colleges of supervisors. The Supervisory Colleges of the
banks concerned will, throughout February and beyond, ensure adequate
consultation between home and host authorities on the plans and the
impact in their jurisdictions.

The analysis will assess the credibility of measures such as
forecasts of retained earnings, the effectiveness of the process for the
approval of new advanced models and the reliability of assumptions
underlying the planned disposal of assets and their geographical impact.

During this process, capital plans may be challenged and in some
cases revised. If earning forecasts or other assumptions look
optimistic, back-up plans will be requested. Capital relief for new
models will be subject to scrutiny by consolidating supervisors and
Colleges.

Banks should expect to receive clear guidance on their plans from
National Authorities in early March after which the EBAs Board of
Supervisors will continue to monitor the viability of the plans ahead of
the June deadline. All National Authorities signalled their commitment
to comply with the Recommendation using their supervisory powers.

The EBA will liaise with the European Systemic Risk Board (ESRB) to
ensure that due consideration is given to macro-prudential issues and to
the aggregate impact on the real economy.

The EBA, with the support of the ESRB, will continue to monitor the
need for the sovereign buffer.

–Paris newsroom, +33142715540; jduffy@marketnews.com
[TOPICS: M$$CR$,MGX$$$,M$$EC$,MI$$$$]

• $10 billion will be allocated to reducing loans
• But the market is $700 billion underwater
• Obama is getting a lift, his approval is at the highest since June
• 750,000 home owners will get an average of $2,000 from botched foreclosures

That money could help out consumer spending but it will probably go straight to the Apple Store.

Maybe, maybe not, but I sure hope that isn’t Plan A.

I wrote about buying USD/JPY on rising US yields on Tuesday. Since then, US 10s have risen to 2.06% from 1.98% and USD/JPY is up 80 pips.

An unexpectedly high yield here would help push dollar-yen even higher.

“You don’t need to wait around for us tonight, since there will be
no outcome,” Germany’s Wolfgang Schaeuble told reporters. “As far as I
know, the deal is not yet ripe” for ratification.

“Besides the ‘prior actions’ that Greece must implement —
Parliament must pass laws for that — we need a program that limits
Greece’s total debt to around 120% of GDP by 2020,” Schaeuble reminded.
“The basic conditions have not yet been fulfilled, so further work is
necessary.”

“Nobody expects a ratification at this stage,” Schaeuble
reiterated, adding that it was yet unclear whether the ministers would
convene again on Sunday. “We will meet again when negotiations in Greece
have produced results and when the Troika confirms that results have
been achieved.”

Eurogroup President Jean-Claude Juncker, who is presiding over
tonight’s meeting, was also dubious about the chances of a final deal
emerging from it. He told reporters he did not expect final approval of
a Greek deal tonight, adding that there “needs to be more debate” on
some elements of the plan. But he said the lack of a finished deal was
“not a disaster.”

The comments by Juncker and especially Schaeuble stood in stark
contrast with those of Greek Finance Minister Evangelos Venizelos, who
claimed that Greece had reached a “strong and credible agreement” with
its official lenders on economic reforms and new austerity measures, and
the basic parameters of a debt swap deal with private creditors.

Venizelos said that endorsement of the overall package by his
Eurogroup colleagues was now needed as the “final step.” He did not say
when he expected that to happen.

Austrian Finance Minister Maria Fekter, showing her irritation,
stressed that “only a small part” of Greece’s planned structural reforms
had been implemented. “Our patience is running out,” she said.

“We will see whether a complete deal is ready today,” Fekter added,
underscoring the need for confirmation from the IMF. “If the IMF no
longer has confidence, then we won’t either.”

The IMF’s Managing Director Christine Lagarde was rather upbeat,
welcoming the “very encouraging” news from Athens, and adding that the
chances of a deal were “positive.”

But Olli Rehn, the European Commission’s Vice President for
Economic and Monetary Affairs and the Euro, made clear the threshold was
high and the ball in Greece’s court. “The Greek government must convince
its partners by its actions that the program is workable,” he said.

[TOPICS: M$X$$$,M$Y$$$,M$G$$$,MI$$$$,MT$$$$,MGX$$$]

By John Shaw

WASHINGTON (MNI) – House Speaker John Boehner said Thursday that
the House-Senate conference committee that has been convened to
negotiate a payroll tax-cut extension package must “get moving” and
reach an accord soon.

At a briefing, Boehner said a compromise package should be
developed by the House-Senate conference committee rather than in
private talks by congressional leaders.

But he signaled that substantial progress is needed quickly.

“Time is running short,” Boehner said. but added he will not
set “an artificial deadline” for an agreement.

“The sooner the better,” he said about a payroll tax-cut extension
agreement.

The Speaker said the package must be paid for by a “reasonable
bipartisan agreement on spending cuts.”

Asked if part of the package might be paid for by claiming savings
from winding down the wars in Iraq and Afghanistan, Boehner seemed
deeply skeptical.

“I think it needs to pass the straight-face test,” Boehner said.

Boehner blamed Senate Democrats and President Obama for holding up
progress on the talks. “It’s time for them to act,” Boehner said.

The fourth meeting of House-Senate conference committee to draft a
payroll tax cut accord was held Tuesday and was full of acrimony.

Throughout Tuesday’s session, both House Ways and Means Committee
Chairman Dave Camp and Senate Finance Committee Chairman Max Baucus
pleaded for negotiators to approach the talks with both urgency and
flexibility.

Camp urged congressional leaders to tone down their sharply
partisan rhetoric.

“Let’s let the conferees work,” Camp said. “I don’t think the
comments from either side of leadership — from either body — are
particularly helpful,” Camp said.

The House-Senate conference committee has been working for several
weeks to draft a payroll tax cut package.

The talks are focusing on a $160 billion package to extend the
payroll tax cut, extend unemployment insurance benefits and prevent a
deep cut in Medicare reimbursements for doctors.

Congress passed a two-month extension of these programs which will
expire at the end of February. Both Obama and congressional leaders say
they want to pass a one-year extension of these programs, but there are
scores of policy details to resolve as well as a budget offset package
of at least $160 billion.

House Republicans recommend paying for the package by extending a
federal employee pay freeze, increasing Medicare premiums for upper
income beneficiaries, and cutting funds from the new health care law.

Senate Democrats prefer to pay for the package by imposing a surtax
on those with incomes over $1 million.

On another matter, Boehner said he is not familiar with “the
particulars” of the $26 billion mortgage agreement, but said a package
that improves accountability is positive.

** Market News International Washington Bureau: (202) 371-2121 **

[TOPICS: M$U$$$,MFU$$$,MCU$$$]

These things will happen in this order:

1. Greek Parliament passes austerity legislation
2. Troika approves second bailout
3. PSI deal completed

The Parliamentary vote is expected on Sunday and the bond swap is supposed to start Monday. All the deals appear to be in place, so it’s possible but there is not much room for error. Expect a very skittish market late Friday, Sunday and Monday.

Hard to argue with that logic…

The Federal Reserve Board on Thursday announced that it has reached
an agreement in principle with five banking organizations regarding the
issuance of monetary sanctions against the organizations totaling $766.5
million. The monetary sanctions would be assessed for unsafe and unsound
processes and practices in residential mortgage loans servicing and
foreclosure processing. These deficiencies were identified by examiners
during reviews conducted from November 2010 to January 2011. The
deficiencies represented unsafe and unsound practices at these five
institutions and corrective measures were required by formal enforcement
actions issued against the institutions on April 13, 2011.

The Board will assess monetary sanctions against the parent holding
companies of the five largest mortgage servicers supervised by federal
banking regulators for failure to appropriately oversee their
subsidiaries’ mortgage loan servicing and foreclosure processing
operations. Those parent holding companies are Bank of America Corp.,
Citigroup Inc., Ally Financial, Inc., JPMorgan Chase & Co., and Wells
Fargo & Co. The Board will also assess monetary sanctions against the
two mortgage servicers owned by JPMorgan Chase and Ally Financial that
are subject to the Board’s jurisdiction for the servicers’ failures.
Those servicers are GMAC Mortgage, LLC a subsidiary of Ally Financial,
Inc., and EMC Mortgage Corporation, a subsidiary of JPMorgan Chase & Co.

The amounts of the monetary sanctions to be levied by the Board
against these institutions are as follows:

Institution BHC Penalty Servicer Penalty Total

Bank of America $175.5 million $175.5 million

Wells Fargo $87 million $87 million

JPMorgan Chase $106.5 million $168.5 million $275 million

Citigroup $22 million $22 million

Ally Financial $17 million $190 million $207 million

The amount of the sanctions assessed against each organization
takes into account the maximum amount prescribed for unsafe and unsound
practices under the applicable statutory limits, the comparative
severity of the institutions’ misconduct, and the comparative sizes of
the institutions’ foreclosure activities. The executed assessment orders
will be released shortly.

In agreeing to issue the more than $766.5 million in monetary
sanctions, the Board is acting in conjunction with a comprehensive
settlement agreed in principle between the five banking organizations,
the state Attorneys General, and the Department of Justice on February
9, 2012 (“Settlement Agreement”). The Settlement Agreement requires
these organizations to provide $25 billion in payments and other
designated types of monetary assistance and remediation to residential
mortgage borrowers. The Settlement Agreement amount includes the Board’s
monetary sanctions. In an effort to facilitate a broad settlement of
related state and federal claims, and to obtain an agreement that will
maximize the effectiveness of assistance provided through an integrated
set of remedial programs, the Board decided to participate with federal
and state regulatory and law enforcement authorities in a joint
settlement.

Under the terms of the Board’s agreement in principle, the banking
organizations must pay to the Board for remittance by the Board to the
U.S. Treasury the amount of the sanction not expended by the
organization within two years in providing borrower assistance or
remediation in compliance with the Settlement Agreement (“Borrower
Assistance”), or on a program, acceptable to the Federal Reserve, to
provide funding for nonprofit housing counseling organizations for
counseling to borrowers who are facing default or foreclosure or in
connection with borrower remediation set forth in the independent
foreclosure reviews required by the April 13 enforcement actions
(“Counseling Program”). The Federal Reserve will closely monitor
expenditures on Borrower Assistance and the Counseling Program and
compliance by the five banking organizations with the requirements of
the monetary sanctions issued by the Board.

In 2011, enforcement actions were also issued against another six
institutions supervised by the Federal Reserve for unsafe and unsound
processes and practices in residential mortgage loan servicing and
foreclosure processing. Although the Federal Reserve is not issuing
monetary sanctions against those six institutions at this time or
against the two thrift holding companies now under the Federal Reserve’s
jurisdiction that control mortgage servicing subsidiaries, the Federal
Reserve believes that monetary sanctions in those cases are appropriate
and plans to announce monetary penalties against them.

The actions issued in April required the banking organizations that
have servicing entities regulated by the Federal Reserve to, among other
things, submit plans acceptable to the Federal Reserve to correct the
many deficiencies in residential mortgage loan servicing and foreclosure
processing. Those plans must, among other things, strengthen the
coordination of communications with borrowers by providing borrowers the
name of the person at the service who is their primary point of contact,
establish limits on foreclosures where loan modifications have been
approved, establish robust third party vendor controls, strengthen
compliance programs, and provide appropriate remediation to borrowers
who suffered financial injury as a result of errors by the servicers. In
addition, the enforcement actions issued in April required the parent
holding companies to submit plans acceptable to the Federal Reserve to
improve holding company oversight of residential mortgage loan servicing
and foreclosure processing conducted by bank and nonbank subsidiaries.
Those plans must, among other things, strengthen board of directors’
oversight over residential mortgage servicing activities, and enhance
enterprise-wide risk management, compliance, and internal audit
programs.

The corrective plans must be acceptable to the Federal Reserve. We
expect to publish the action plans shortly. The Federal Reserve will
continue to closely monitor the conduct of the foreclosure review and
the institutions’ implementation of the plans, and will take additional
enforcement actions as needed.

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: MTABLE,M$U$$$,MMUFE$,MGU$$$,MFU$$$,M$$AG$,M$U$$$]

Some, however, said they still expected a rate cut as early as next
month in light of a still worrying credit picture.

Some analysts thought Draghi had hinted the ECB might contribute
some of the profits on its Greek bond holdings to help Greece reduce its
debt, though others said he had been “tight lipped” on the subject.

Below are excertps from analysts’ comments:

JOERG KRAEMER, Commerzbank: “[Draghi] he said the sale of ECB owned
Greek government bonds to the EFSF bailout fund without a loss would not
be monetary financing of governments which is forbidden by the ECB
statute. This comment is very interesting because there have been a lot
of media reports speculating that the ECB could sell its bonds to the
EFSF at the average purchasing price of about 75. Such a sale would mean
that Greece would need to repay 25% less at the time of maturity.
Consequently, less money would flow back to the ECB; the amount of
central bank money outside the ECB would increase if the ECB would
participate in a debt restructuring. Insofar, it would be a form of
monetary financing. However, there would be no need for the ECB to take
a loss, which is why we see a significant probability for an ECB
participation in a Greek debt restructuring.”

MATTEO COMINETTA, UBS economist: “I think the main message was
broadly in line with what we expected. The ECB is in a waiting mode in
the sense that leading indicators and hard data showed some improvement
or at least some signs of stabilization. It may be that economic
activity fall less than expected. On the other hand, the effect of the
three-year LTRO still has to be seen. The ECB wants to understand how
these two things play out before deciding what to do next. We expect a
[refi rate] cut next month. The economic situation is pretty dire. It’s
true that there have been signs of stabilization, but part of this could
be due to the weather, which was very mild until a week ago. So, I think
that, unless data come in very strong in the next month, they will cut
again. And then we penciled in another 25-point cut in April, but I
think that one will be more data dependent.”

JONATHAN LOYNES, Capital Economics: “Draghi was tight-lipped on the
question of whether the ECB would be prepared to take a haircut on its
holdings of Greek debt, but said on several occasions that any losses on
its purchases would count as ‘monetary financing’ and hence violate the
ECB’s treaty. Admittedly, that might leave open the possibility of some
reduction in the ECB’s profits on its purchases – remember that it made
them at well below par prices. With agreement on the latest Greek
austerity programme having reportedly been reached today, the precise
shape of the debt restructuring – and any ECB involvement – should soon
become clear. Overall, though, the message from the ECB remains pretty
clear. While it remains happy to fulfil its role as lender of the last
resort to the Eurozone’s banks, the region’s governments should sort
their fiscal problems out for themselves.”

CARSTEN BRZESKI, ING: “Draghi repeated several times that financing
government debt by the ECB was forbidden by the treaties. In this
context, Draghi also said that giving money to a bailout programme was
prohibited. Even selling the ECB bonds to the EFSF could be seen as
government financing. Taking profits and redistributing these to the
national central banks might be a possibility. The ECB’s role in any PSI
or OSI still hangs in the balance. It is obvious that the ECB is not
willing to take a loss and even hesitant to sell to the EFSF. We might
know more after tonight’s Eurogroup meeting in Brussels. In its role as
the fire brigade for the Eurozone economy, the ECB is leaning back,
keeping its powder dry and will wait-and-see…Rate cuts, however, are
not yet off the table, but are highly conditional on growth.”

HOWARD ARCHER, IHS Global Insight: “We had considered that there
was a very decent chance that the ECB could cut interest rates from
1.00% to 0.75% in March, but this now looks less likely. Nevertheless,
we still think that the ECB will eventually bring interest rates down
lower, which reflects our belief that the Eurozone will suffer
appreciable economic weakness over the early months of 2012, at least.
And we anticipate that mounting evidence of retreating inflationary
pressures will give the ECB increasing scope to bring interest rates
lower. So we suspect that the ECB will end up cutting interest rates
from 1.00% to 0.75% before too long and we still think there is a very
real possibility that interest rates could eventually come down as low
as 0.50%.”

LUIGI SPERANZA, BNP Paribas: “Interest rates were not even
discussed at the meeting, but the downbeat assessment of credit
conditions leaves the impression that the ECB has a very open mind on
the option of additional conventional easing and we have little reason
to change our view it will cut the refi rate again by 25 bps, probably
at the March meeting in tandem with the new staff projections…. In
sum, the concern over the tightening in credit standards and the further
slowdown in monetary aggregates prevailed on the relief from the
reduction in financial stress and some tentative stabilisation in the
surveys. The door for additional conventional easing is therefore open
and we continue to see a greater probability than the market is
discounting that the refi rate will be lowered by another 25 bps in the
near term.”

ARND SCHAEFER, West LB: “I think (the ECB) will wait and see.
Draghi mentioned twice or more that the main topic is to avoid a credit
crunch. That is why we had the three year tender in December and now he
is waiting for the next one at the end of this month. Then he will look
to see what happens with the credit markets. If you think about economic
developments, he says more or less that it is also very weak. So, in our
view, looking at the next six months, we see one or two rate cuts in our
forecast (25 basis points each), [down to] 0.5% at the end.”

MARCO VALLI, UniCredit: “As expected, today the ECB left the refi
rate at 1% and took no further steps on unconventional policy. Draghi
also announced that Greek party leaders have reached an agreement on the
austerity deal. The overall tone of the press conference was more upbeat
than in January, and much in line with what we had anticipated. Today,
Draghi went out of his way making clear that there is no stigma attached
to using the 3-year LTRO – making the statement unprovoked (along with a
public slamming of bankers suggesting otherwise), clearly suggesting
that he wants banks to use this facility aggressively. With the ECB now
in wait-and-see mode, we feel happy with our forecast of no further rate
cuts down the road.”

JULIAN CALLOW, Barclays: “While the Q&A did not address inflation
risks, we note that the statement also removed from the opening
paragraph the line from a month earlier that ‘cost, wage and price
pressure in the euro area should remain modest’, while in the
‘concluding’ monetary assessment he argued only that ‘underlying price
pressures should remain limited”. Our conclusion from this would be
that, after incorporation of recent price indications, including from
commodities and underlying producer prices, and from the reduced
downside risks to the growth outlook, the Council does not feel that the
inflation is set to decline quite so much during the course of 2012 as
it might have felt one or two months previously.”

–Paris newsroom, +331-42-71-55-40; paris@marketnews.com

[TOPICS: M$X$$$,M$$EC$,M$Y$$$,MGX$$$,M$$CR$]

MPC members recent views’ have ranged from arch dove Adam Posen
saying there was a case to do Stg75 billion QE to colleagues expressing
doubts that inflation would fall back below target, implying they could
argue no extra QE was justified. The debate now among analysts centres
on whether this latest QE tranche will prove to be the last.

The MPC’s statement accompanying the stg50 billion announcement
set out a broad brush case for the extra stimulus without, as analysts
pointed out, offering illumination on why the precise amount was
selected.

“In the light of its most recent economic projections, the
Committee judged that the weak near-term growth outlook and associated
downward pressure from economic slack meant that, without further
monetary stimulus, it was more likely than not that inflation would
undershoot the 2% target in the medium term,” the MPC statement said.

The MPC statements justifying a policy decision are compromises,
based on the points they can agree on rather than divisions.

This statement simply confirms the February Inflation Report’s
projections will support this month’s policy decision, at least as a
piece of “coarse tuning”, but is a moot point how much scope they will
allow for further QE.

As the November Inflation Report’s central projection was for CPI
to fall to around 1.3% two years ahead, even if this has been revised up
to, say, 1.6% or 1.7% with risks balanced in the February Report, it
would still be compatible with the extra Stg50 billion QE.

The pattern of QE votes has been unanimity at its launch and
re-launch, but the first wave of QE in 2009 suggesting that unity may
not last.

When QE started in March 2009 the vote in favour of Stg75 billion
was unanimous, and stayed that way through the following four monthly
meetings, but members split over the QE extensions in August and
November that year.

The vote to launch the second wave of QE, for Stg75 billion in
October 2011, was unanimous and the MPC stayed united in the following
three meetings when it was left unchanged. Yet the January meeting
showed that some members were ready to dissent.

It will clearly have been a struggle to unite the committee this
month.

The MPC’s arch dove Adam Posen, in a Feb 2 Bloomberg interview, saw
a case for doing Stg75 billion more QE, although he stopped short of
committing himself to it, but as the uber dove of the committee, it was
always unclear what level of support he would garner from the rest of
the committee.

“I thought Stg75 billion was a good slug last time and I think
there is a case to do it again,” he said.

On Jan 23, however, Posen told reporters that doing less QE now
than the MPC sanctioned at the height of the financial crisis was
“reasonable”.

“There was no point doing anything less than Stg50 billion and if
doing Stg175 billion was enough in the worst of the crisis it is
probably reasonable that we are doing less than that now,” he said.

Today’s MPC decision takes total QE in the second wave to Stg125
billion, so if the MPC sanctions another Stg50 billion in May it would
match that Stg175 billion figure.

While even Posen seems to have his doubts about doing much more QE,
the minutes of the January meeting revealed some members were skeptical
about doing any more.

While “For some members, the risks of undershooting the target
meant that a further expansion of asset purchases was likely to be
required … For other members, the risks to inflation were more finely
balanced and it was less clear that inflation would fall below the
target in the medium term.”

Nevertheless, the substantial projected inflation undershoot in the
November Inflation Report has allowed the more hawkish MPC members to
make their own assumptions of a higher CPI outturn and still support
more QE.

The detailed projections of the February Inflation Report, out on
Feb 15, and the minutes of this week’s MPC meeting, out on Feb 22, will
clarify what happened this time around.

While opinions on the MPC are divided, the Stg50 billion QE
extension is likely to have been offered as a compromise deal and a
split in the vote, while highly plausible, is not inevitable.

The MPC decision Thursday came as no surprise, with 25 out of 31
economists in a Market News’ survey predicting it, and not extending QE
at all would have created market turbulence.

There is little certainty over what happens next and if the recent
strong economic data continue, the chances of QE2 coming to an early end
will rise.

–London newsroom: 4420 7862 7491; email: drobinson@marketnews.com

[TOPICS: M$$BE$]

Make. It. Stop.

“We are negotiating separately,” Noonan told reporters as he
arrived for the Eurogroup meeting on Greece here.

News reports Wednesday had quoted Noonan has saying that any
concessions on Greece by the European Central Bank would help Ireland’s
negotiating position as it seeks to refinance E30 billion euros of
promissory notes used to rescue the former Anglo Irish Bank.

He said that a Greece deal would be positive for the Eurozone in
general as it would help stabilize the economy spur a return to growth.
“And we need stability and growth,” he said.

However, Noonan said it was “too early to say a Greek deal has been
done.”

Noonan also said there was a possibility that Ireland would return
to the credit markets this year, rather than in 2013 as was originally
planned.

–Brussels newsroom: +324-9522-8374

[TOPICS: M$D$$$,M$$CR$,MFX$$$,MGX$$$,M$X$$$,M$$EC$]