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DGAP-News: Silvia Quandt & Cie. AG, Merchant & Investment Banking: In-between the lines - Bernhard Eschweiler (deutsch)

Veröffentlicht am 07.10.2011, 07:33
Aktualisiert 07.10.2011, 07:36
Silvia Quandt & Cie. AG, Merchant & Investment Banking: In-between the lines - Bernhard Eschweiler

DGAP-News: Silvia Quandt & Cie. AG, Merchant & Investment Banking /

Schlagwort(e): Sonstiges

Silvia Quandt & Cie. AG, Merchant & Investment Banking: In-between the

lines - Bernhard Eschweiler

07.10.2011 / 07:33

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- ECB still worried about inflation, but willing to provide more

liquidity

- Europe likely to move toward bank recapitalization - but not uniformly

- Business sentiment not yet gloomy enough to trigger recession in

Germany

Financial markets continue to bounce between hope and despair, but the

underlying pattern is changing. Initially, the market turmoil was

triggered by the debt problems in both the US and Europe. Then pessimism

centered mostly around Europe. Now, it is Europe's inability to solve its

problems that is dragging down the rest of the world. Today's ECB decision

did not change the situation despite the promise of unlimited liquidity

until at least the middle of next year. The escalating banking crisis

reflects both liquidity and solvency problems and is closely linked to the

sovereign debt issues in Greece and elsewhere. The Dexia incident has made

a bank recapitalization drive more likely, but decisions are not likely to

be taken swiftly and Euro-wide. Meanwhile, the economic damage becomes

visible in more and more places. Italy and Spain are set to follow Greece

and Portugal into recession. Only Germany is holding up better than

expected, but for how long?

ECB provides more liquidity but no rate cut

Today's decision by the ECB to leave policy unchanged should not have come

as a surprise despite market hopes for a rate cut. Current headline

inflation is still the most important guide for ECB policymaking. Thus,

with the latest figure back up to 3%, a rate cut was unlikely. Even so,

the ECB has clearly changed its outlook on the Euro area and is now

speaking of 'intensified downside risks'. The announcement of additional

and extended liquidity measures as well as the resumption of the covered

bond purchase program is testimony of the ECB's concerns. In our judgment,

prevailing economic pressure will reduce headline inflation in coming

months and allow the ECB to lower the policy rate toward year end. That

should be welcome news, but is unlikely to solve the sovereign and banking

crisis.

Today was also the last ECB meeting chaired by Jean-Claude Trichet. The

transition to Mario Draghi is expected to be smooth. Draghi is viewed as

capable, experienced, skillful and sufficiently independent from political

influences. However, it is to be seen whether Draghi will have the same

level of energy as Trichet, which is enormous. Whether one agrees with his

views and decisions, Trichet has worked relentlessly behind the scenes to

keep fiscal and monetary policymakers across the Euro area focused on the

issues and move the agenda forward.

Moves to calm Euro crisis likely to emerge

The Dexia incident has been a wake-up call for the political leadership

that the repercussions of the sovereign debt crisis are very serious for

the banking systems. It also highlights the information asymmetry faced by

policymakers: Dexia passed both stress tests with top grades. Moreover,

Dexia is only the peak of the iceberg. The problem is not just banks'

sovereign risk exposures but overall risk exposures in the periphery. For

French and German banks, the overall risk exposure to Greece, Ireland,

Italy, Portugal and Spain is more than 150% of their capital and more than

30% and 20% of GDP respectively. By far the most alarming risk

concentration is the exposure of French banks to Italy.

Given the information asymmetry, only mandatory across-the-board

recapitalization measures have the potential to work and calm markets (see

US TARP experience). However, a coordinated Euro-area move seems unlikely

for political as well as practical reasons. Instead, we expect individual

countries to announce independent bank recapitalization programs between

now and the end of the year. Some countries, notably the three EFSF

program countries plus Italy and Spain, will probably get support from the

EFSF. This should help stabilize markets, but is not the final solution.

The two other immediate issues are Greece and the size of the EFSF.

- Greece will get the next tranche of the rescue package with near

certainty despite current delay. Otherwise, Greece would be forced to

declare insolvency in November. Even if the Euro group decides to let

Greece fail, it would want to do so in an orderly fashion for which

there is not enough time until November. Possible, however, is that

banks will be forced to contribute more to the Greek rescue package.

That option was mentioned by German Chancellor Merkel.

- Least clear is how Euro leaders plan to bulk up the EFSF, which seems

important. Providing more capital is politically difficult, especially

in Germany, and the ECB made clear that it will not provide credit. An

alternative is a market-based solution in which the EFSF provides only

a partial guarantee. Such structures have worked in good times, but

may not do so under uncertainty.

Little signs of weakness in Germany - so far

So far, there are few signs of acute economic stress in Germany. Leading

indicators have dropped, most notably the ZEW index, but that has not yet

translated into actual weakness. Manufacturing orders dropped 1.2% in

August, but the data is volatile due to lumpy items, especially aircraft

orders. Excluding planes, ships and trains, the average of orders in July

and August stood 4.2% annualized above the second quarter. Tomorrow's

industrial production report for August is set to show a hefty drop due to

calendar distortions, but that follows a 4.5% surge in July. Average

output in July and August is likely to come in at least 10% annualized

above the second quarter. News from the labor market also

remains positive. Unemployment continued to decline and job vacancies rose

further in September. All in all, Q3 GDP is poised to surprise on the

upside. But that is no consolation if activity drops afterwards. In our

judgment, the economy is not ripe for recession, but the drop in sentiment

and the deterioration in global economic conditions can lead to a downturn.

The balance of business expectations has shifted into negative territory

according to the IFO survey, but is not sufficiently gloomy to trigger a

recession. Business expectations and assessments of current conditions

have to shift far into negative territory until year end if recession is to

follow. Otherwise, Germany may get away with just a modest slowdown, which

is still our best guess.

Disclaimer

This analysis was prepared by Bernhard Eschweiler, Senior Economic Advisor,

and was first published 7 October 2011, Silvia Quandt Research GmbH,

Grüneburgweg 18, 60322 Frankfurt is responsible for its preparation. German

Regulatory Authority: Bundesanstalt für Finanzdienstleistungsaufsicht

(BaFin), Graurheindorfer Str. 108, 53117 Bonn and Lurgiallee 12, 60439

Frankfurt.

Publication according to article 5 (4) no. 3 of the German Regulation

concerning the analysis of financial instruments (Finanzanalyseverordnung):

Number of recommendations Thereof recommendations for issuers to which

from Silvia Quandt Research investment banking services were provided

during

GmbH in 2011 the preceding twelve months

Buys: 99 37

Neutral: 38 1

Avoid: 6 0

Company disclosures

Article 34b of the German Securities Trading Act (Wertpapierhandelsgesetz)

in combination with the German regulation concerning the analysis of

financial instruments (Finanzanalyseverordnung) requires an enterprise

preparing a securities analysis to point out possible conflicts of interest

with respect to the company or companies that are the subject of the

analysis. A conflict of interest is presumed to exist, in particular, if an

enterprise preparing a security analysis:

(a) holds more than 5 % of the share capital of the company or companies

analysed;

(b) has lead managed or co-lead managed a public offering of the

securities of the company or companies in the previous 12 months;

(c) has provided investment banking services for the company or companies

analysed during the last 12 months for which a compensation has been or

will be paid;

(d) is serving as a liquidity provider for the company's securities by

issuing buy and sell orders;

(e) is party to an agreement with the company or companies that is the

subject of the analysis relating to the production of the recommendation;

(f) or the analyst covering the issue has other significant financial

interests with respect to the company or companies that are the subject of

this analysis, for example holding a seat on the company's boards.

In this respective analysis the following of the above-mentioned conflicts

of interests exist: none

Silvia Quandt Research GmbH, Silvia Quandt & Cie. AG, and its affiliated

companies regularly hold shares of the analysed company or companies in

their trading portfolios. The views expressed in this analysis reflect the

personal views of the analyst about the subject securities or issuers. No

part of the analyst's compensation was, is or will be directly or

indirectly tied to the specific recommendations or views expressed in this

analysis. It has not been determined in advance whether and at what

intervals this report will be updated.

Equity Recommendation Definitions Silvia Quandt Research GmbH analysts rate

the shares of the companies they cover on an absolute basis using a 6 -

12-month target price. 'Buys' assume an upside of more than 10% from the

current price during the following 6 - 12-months. These securities are

expected to out-perform their respective sector indices. Securities with an

expected negative absolute performance of more than 10% and an

under-performance to their respective sector index are rated 'avoids'.

Securities where the current share price is within a 10% range of the

sector performance are rated 'neutral'. Securities prices used in this

report are closing prices of the day before publication unless a different

date is stated. With regard to unlisted securities median market prices are

used based on various important broker sources (OTC-Market).

Disclaimer This publication has been prepared and published by Silvia

Quandt Research GmbH, a subsidiary of Silvia Quandt & Cie. AG. This

publication is intended solely for distribution to professional and

business customers of Silvia Quandt & Cie. AG. It is not intended to be

distributed to private investors or private customers. Any information in

this report is based on data obtained from publicly available information

and sources considered to be reliable, but no representations or guarantees

are made by Silvia Quandt Research GmbH with regard to the accuracy or

completeness of the data or information contained in this report. The

opinions and estimates contained herein constitute our best judgement at

this date and time, and are subject to change without notice. Prior to this

publication, the analysis has not been communicated to the analysed

companies and changed subsequently. This report is for information purposes

only; it is not intended to be and should not be construed as a

recommendation, offer or solicitation to acquire, or dispose of, any of the

securities mentioned in this report. In compliance with statutory and

regulatory provisions, Silvia Quandt & Cie. AG and Silvia Quandt Research

GmbH have set up effective organisational and administrative arrangements

to prevent and avoid possible conflicts of interests in preparing and

transmitting analyses. These include, in particular, inhouse information

barriers (Chinese walls). These information barriers apply to any

information which is not publicly available and to which any of Silvia

Quandt & Cie. AG and Silvia Quandt Research GmbH or its affiliates may have

access from a business relationship with the issuer. For statutory or

contractual reasons, this information may not be used in an analysis of the

securities and is therefore not included in this report. Silvia Quandt &

Cie. AG and Silvia Quandt Research GmbH, its affiliates and/or clients may

conduct or may have conducted transactions for their own account or for the

account of other parties with respect to the securities mentioned in this

report or related investments before the recipient has received this

report. Silvia Quandt & Cie. AG and Silvia Quandt Research GmbH or its

affiliates, its executives, managers and employees may hold shares or

positions, possibly even short sale positions, in securities mentioned in

this report or in related investments. Silvia Quandt & Cie. AG in

particular may provide banking or other advisory services to interested

parties. Neither Silvia Quandt Research GmbH, Silvia Quandt & Cie. AG or

its affiliates nor any of its officers, shareholders or employees accept

any liability for any direct or consequential loss arising from any use of

this publication or its contents. Copyright and database rights protection

exists in this publication and it may not be reproduced, distributed or

published by any person for any purpose without the prior express consent

of Silvia Quandt Research GmbH. All rights reserved. Any investments

referred to herein may involve significant risk, are not necessarily

available in all jurisdictions, may be illiquid and may not be suitable for

all investors. The value of, or income from, any investments referred to

herein may fluctuate and/or be affected by changes in exchange rates. Past

performance is not indicative of future results. Investors should make

their own investment decisions without relying on this publication. Only

investors with sufficient knowledge and experience in financial matters to

evaluate the merits and risks should consider an investment in any issuer

or market discussed herein and other persons should not take any action on

the basis of this publication.

Specific notices of possible conflicts of interest with respect to issuers

or securities forming the subject of this report according to US or English

law: None

This publication is issued in the United Kingdom only to persons described

in Articles 19, 47 and 49 of the Financial Services and Markets Act 2000

(Financial Promotion) Order 2001 and is not intended to be distributed,

directly or indirectly, to any other class of persons (including private

investors). Neither this publication nor any copy of it may be taken or

transmitted into the United States of America or distributed, directly or

indirectly, in the United States of America.

Frankfurt am Main, 07.10.2011

Silvia Quandt Research GmbH

Grüneburgweg 1860322 Frankfurt

Tel: + 49 69 95 92 90 93 -0

Fax: + 49 69 95 92 90 93 - 11



Ende der Corporate News

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07.10.2011 Veröffentlichung einer Corporate News/Finanznachricht,

übermittelt durch die DGAP - ein Unternehmen der EquityStory AG.

Für den Inhalt der Mitteilung ist der Emittent / Herausgeber

verantwortlich.

Die DGAP Distributionsservices umfassen gesetzliche Meldepflichten,

Corporate News/Finanznachrichten und Pressemitteilungen.

Medienarchiv unter http://www.dgap-medientreff.de und

http://www.dgap.de

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141584 07.10.2011

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