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DGAP-News: 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

29.06.2012 / 15:13


– Euro leaders agree on a vague vision for a tighter union but not on a
road map

– Merkel gets her way without giving much

– ECB provides glue to keep Euro together and is likely to apply more

– Market pessimism impacts business sentiment – 2011 déjà-vu?

Financial markets continue to oscillate between hope and disappointment.
The outcome of the Greek election, although widely viewed as Euro friendly,
had little impact on sentiment. The G20 summit produced empty statements
and the agreement by France, Germany, Italy and Spain on a EUR130 billion
growth package contained nothing new to get markets exited. Nevertheless,
markets have not given up hope that something positive may come out of the
EU summit today and tomorrow. Don–t get excited. Yes, some commitment to
a fiscal and banking union is likely to emerge, but the differences over
the road map remain too large at the moment. The likely result: more
muddling through. Indeed, expecting more would be naïve. While
frustrating, however, this process is not necessarily doomed. Critical is
the role of the ECB, which is likely to do more to keep the Euro on track.

Completing monetary union in small steps

The recognition, that monetary union requires a closer fiscal union as well
as a banking union, is gaining weight. Most likely, the closing statement
of the current EU summit will outline a vision of fiscal and banking union.
Moving from that vision to a road map and concrete measures, however, will
remain a process of small steps. Too large are the differences, especially
between Germany and France. As we wrote before, asking German tax payers
to transfer funds without retaining some control is politically not
feasible. On the other hand, Germany is sufficiently committed to the Euro
and the periphery so dependent on Germany that acute stress is likely to
lead to step-by-step compromises. The box above outlines where compromise
is likely or possible.

Already announced or widely anticipated are the growth package, the Spanish
bank recapitalization program, a rescue package for Cyprus and the
supervision of the largest banks. Likely is also a stretching of fiscal
targets. Greece will struggle to get much relief from the Troika, but
countries like Spain, that comply with the fiscal requirements yet miss
their targets due to poor economic conditions, can expect more sympathy.
Open is whether fiscal targets will be officially stretched or deviations
just tolerated. Unlikely at this moment are any measures to mutualize
liabilities. For that to happen, Germany and its allies will require more
democratic fiscal control at a pan-European level, which most other
countries led by France are currently not willing to accept.

Possible are measures that increase the emergency-response capabilities of
EFSF and ESM. Formally, EFSF and ESM have the option to intervene in the
government bond market. However, Germany has not yet given the final green
light. That could be an outcome of the summit. Related is the issueof
EFSF/ESM resources (bank license or funding increase). A decision is
unlikely at this summit, but the issue will remain on the agenda,
especially if the Euro comes under more pressure.

ECB at center stage

Critics argue that this muddling through is not sustainable as it fails to
build market confidence. To be sure, that is a risk, but not an inevitable
outcome. First, Ireland and Portugal are good examples that sticking to
reforms can build market confidence over time. Both countries have seen
sovereign spreads narrowing. In the case of Ireland, the Target2 balances
also show that capital is coming back into the banking system. Second,
there is the ECB that plays an underappreciated role in keeping the system
together. While sovereign spreads for Italy and Spain have widened again,
Euro interbank spreads have remained low. Last week–s easing of collateral
standards was another small step in the ECB–s efforts to keep the banking
system afloat.

The market is increasingly anticipating an ECB rate cut at the council
meeting next week. From an economic perspective, the ECB can justify a
rate cut with weaker economic performance, falling inflation and stagnant
bank credit. To be sure, cutting rates will have little direct impact on
economic growth. However, lowering funding costs will have a substantial
impact on the financial position of the banking system, given how much
banks now depend on ECB liquidity. Thus, we expect that the ECB will lower
the policy rate in two steps in the third quarter to 0.5%. Less likely is
a near-term reactivation of the SMP. For the ECB, the SMP is a temporary
emergency tool. Using the SMP more proactively would provoke German
protest, which ECB president Draghi is trying to avoid as long as possible.

German business expectations vs. conditions

Last week–s IFO survey showed that Germany is not immune from the Euro
crisis. The expectations component dropped notably and is back to the low
of last October. Current conditions, however, improved modestly and remain
in expansion territory. The question is whether current conditions will
follow expectations downward or whether current conditions will hold up and
expectations eventually improve as was the case last year. We think the
latter. The improvement of expectations at the end of last year was
triggered by better global economic conditions, notably the recovery in the
US. We are optimistic that the US will not spiral into recession, but see
the bigger potential for positive news

coming from China, which is accelerating its stimulus program. In
addition, we believe that German domestic demand will prove resilient.
Thus, the better-than-expected consumer confidence survey was good news.
But even more support is likely to come from residential construction.


This analysis was prepared by Bernhard Eschweiler, Senior Economic Advisor,
and was first published 29 June 2012, 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

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
GmbH in 2012 the preceding twelve months
Buys: 92 37
Neutral: 49 6
Avoid: 17 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

(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
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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,
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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, 29.06.2012

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


29.06.2012 Veröffentlichung einer Corporate News/Finanznachricht,übermittelt durch die DGAP – ein Unternehmen der EquityStory AG.
Für den Inhalt der Mitteilung ist der Emittent / Herausgeber

Die DGAP Distributionsservices umfassen gesetzliche Meldepflichten,
Corporate News/Finanznachrichten und Pressemitteilungen.
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