Here's the ugly truth that I, at least to date, have not seen adequately addressed in the media or the vast majority of sell side analysts reports. To wit, CNBC reports "ECB Makes $500 Million Loan, Renewing Bank Fears"

The European Central Bank says it loaned $500 million to a single bank for seven days, raising further fears that a major financial institution could be in trouble.

European Central Bank

The bank said Wednesday on its website that it would make the loan to a single unidentified bidder from its swap line through which it obtains dollars from the U.S. Federal Reserve.

Europe's sovereign debt crisis has provoked fears about the health of the banking system because of the potential for losses from holdings of bonds issued by Greece and other troubled countries.

Some banks are unable to borrow normally from other banks because of fears they will not pay the money back, leaving them dependent on last resort credit from the ECB.

I'm about to walk you through EXACLTY why the ECB needed to make said emergency loan, and why many more such loans are on tap for the very near future. As those who have been reading my blog or subscribed to my research know, I have been quite bearish on French banks of late (see the list of links at end of post for the chronology). Having picked out the prime short candidate for this bearish thesis (based on a relatively high valuation, dire liquidity predicament, and less than forthcoming management, I announced to subscribers that we probably have a prime candidate for a European bank run AND a very profitable short play. That was back in July, when investors/media/sell side analysts attention was focused on Greece and starting to hover over Italy. Well, fast forward a quarter and upon my releasing tidbits of said research to the public... As per ZeroHedge yesterday morning: BNP Freefalling

image001

There should be at least a few of you out there saying, "Damn, I wish I could have gotten in that." After all, rumors surrounded Soc Gen and Credit Agricole, but no one was really looking at the bank that had the most shortable share price. Hmmm! Well, now the shares are eithet banned from shorting (in Europe) or hard to borrow (in the US). The good part for bearish investors (and the problem for the banks) is that there is a limited risk of a short squeeze due to the lame brain decision to ban shorting in Europe! Thus, if you can find the shares (or options, or SSFs, or CDS, or...) go short until your heart's content, or until you hit what you feel fair valuation is, or until the bank implodes due to a bank run.

On that note, let's review my post last week, "BoomBust BNP Paribas?" (it is strongly recommended that you review this article if you haven't read it already) I started releasing snippets and tidbits of the proprietary research that led to the BNP short, namely  Bank Run Liquidity Candidate Forensic Opinion - A full forensic note for professional and institutional subscribers. It outlined some very telling reasons why BNP's share price appears to be spillunking, namely:

1. Management is lying being less than forthcoming with the valuation of toxic assets on its books.
2. The sheer amount of these assets on the books and the levereage employed to attain them are devastating
3. BNP has employed the proven self destructive financing methodology of borrow short, invest in depreciating assets long!
4. BNP management lying being less than forthcoming about reliance on said funding maturity mismatch, despite the fact it handily dispatched Bear Stearns and Lehman Brothers in less than a weekend!

Uh Oh!!!! Or as Robin use to say back in the day, "Holy non sequitor, Batman!"

Well, guess what? The problems delineated above are actually just the tip of the iceberg, and if you feel that they are  the gist of BNP's dilemma, you obviously don't subscribe to BoomBustBlog. Since the BNP research is dated and most of the easy profit has been extracted out of the BNP short trade already I'm systematically spilling the beans - to the chagrin of BNP management, I'm sure. If you want to end up sounding like Robin, the boy wonder above, simply read on...

Another BIG Reason Why BNP Paribas Is Still Ripe For Implosion!

As excerpted from our professional series  Bank Run Liquidity Candidate Forensic Opinion:

BNP_Paribus_First_Thoughts_4_Page_01

This is how that document started off. Even if we were to disregard BNP's most serious liquidity and ALM mismatch issues, we still need to address the topic above. Now, if you were to employ the free BNP bank run models that I made available in the post "The BoomBustBlog BNP Paribas "Run On The Bank" Model Available for Download"" (click the link to download your own copy of the bank run model, whether your a simple BoomBustBlog follower or a paid subscriber) you would know that the odds are that BNP's bond portfolio would probably take a much bigger hit than that conservatively quoted above.  Here I demonstrated what more realistic numbers would look like in said model... image008

To note page 9 of that very same document addresses how this train of thought can not only be accelerated, but taken much further...

BNP_Paribus_First_Thoughts_4_Page_09

So, how bad could this faux accounting thing be? You know, there were two American banks that abused this FAS 157 cum Topic 820 loophole as well. There names were Bear Stearns and Lehman Brothers. I warned my readers well ahead of time with them as well - well before anybody else apparently had a clue (Is this the Breaking of the Bear? and Is Lehman really a lemming in disguise?). Well, at least in the case of BNP, it's a potential tangible equity wipeout, or is it? On to page 10 of said subscription document...

BNP_Paribus_First_Thoughts_4_Page_10

Yo, watch those level 2s! Of course there is more to BNP besides overpriced, over leveraged sovereign debt, liquidity issues and ALM mismatch, and lying about stretching Topic 820 rules, but I think that's enough for right now. Is all of this already priced into the free falling stock? Are these the ingredients for a European bank run? I'll let you decide, but BoomBustBloggers Saw this coming midsummer when this stock was at $50. Those who wish to subscribe to my research and services should click here. Those who don't subscribe can still benefit from the chronology that led up to the BIG BNP short (at least those who have come across my research for the first time)...

Thursday, 28 July 2011  The Mechanics Behind Setting Up A Potential European Bank Run Trastde and European Bank Run Trading Supplement

I identify specific bank run candidates and offer illustrative trade setups to capture alpha from such an event. The options quoted were unfortunately unavailable to American investors, and enjoyed a literal explosion in gamma and implied volatility. Not to fear, fruits of those juicy premiums were able to be tasted elsewhere as plain vanilla shorts and even single stock futures threw off insane profits.

Wednesday, 03 August 2011 France, As Most Susceptble To Contagion, Will See Its Banks Suffer

In case the hint was strong enough, I explicitly state that although the sell side and the media are looking at Greece sparking Italy, it is France and french banks in particular that risk bringing the Franco-Italia make-believe capitalism session, aka the French leveraged Italian sector of the Euro ponzi scheme down, on its head.

I then provide a deep dive of the French bank we feel is most at risk. Let it be known that every banked remotely referenced by this research has been halved (at a mininal) in share price! Most are down ~10% of more today, alone!

•  French Bank Run Forensic Thoughts - Retail Valuation Note - For retail subscribers
•  Bank Run Liquidity Candidate Forensic Opinion - A full forensic note for professional and institutional subscribers

So, What's the Next Shoe To Drop? Read on...

For those who claim I may be Euro bashing, rest assured - I am not. Just a week or two later, I released research on a big US bank that will quite possibly catch Franco-Italiano Ponzi Collapse fever, with the pro document containing all types of juicy details. This is the next big thing, for when (not if, but when) European banks blow up, it WILL affect us stateside! Subscribers, be sure to be prepared. Puts are already quite costly, but there are other methods if you haven't taken your positions when the research was first released. For those who wish to subscribe, click here.

•  Contagion Forensic Review - Retail
•  Contagion Forensic Review - Professional

Those who wish to subscribe to BoomBustBlog research, analysis and opinion should click here! You can follow my public comments via the following avenues....

Reggie Middleton Boom Bust Blog

Relevant subscriber documents:

• BNP Exposures - Professional Subscriber Download Version
  BNP Exposures - Retail Subscriber Download Version
• BNP Exposures - Free Public Download Version
• Trading Opinion and Analysis 9-14-2011
• Trading Opinion and Analysis 9-7-2011
• French Bank Run Forensic Thoughts - Addendum and Update