Thursday, 13 May 2010 07:18

PIIGSlets in a Bank: Another European Banks-at-Risk Actionable Research Note

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This is the skinny on those French and German banks that are at significant risk to PIIGS drowning, or potentially even getting significantly wet. The sell side banks have released reports on which bank is exposed to Greece, etc., but we decided to take it a few steps farther in order to create a truly actionable document that our subscribers can actually use to base concrete decisions upon. As is customary, I am releasing snippets of the proprietary research for free to the blogoshpere. This time around, I'll feature a European bank that we feel is thoroughly insolvent, yet trading at one of the highest premiums in all of Europe! As excepted from the reports referenced below:

Deutsche Postbank

The bank reported its exposure to sovereign debt of Greece, Italy, Ireland, Portugal and Spain at €1.3 billion, €4.7 billion, €350 million, €50 million and €1.2 billion.

Applying the loss rates under the base case, the total estimated losses on sovereign debt holdings is €1.7 billion (60.1% of tangible equity) on the total European sovereign debt exposure of nearly €24.9 billion (based on the reported sovereign debt exposure of December 2009). The existing Texas ratio of the bank is 139%, and if we include the losses on sovereign debt (unconventional, but illustrates solvency in a clearer fashion), the Texas ratio* will be 177%. The bank is trading at price to tangible book value of 1.83x. The stock is trading on a high multiple largely owing to speculation of full takeover by Deutsche bank. The float is 36% of shares outstanding as 39.5% is owned by Deutsche Post and 25% is owned by Deutsche Bank. See Deutsche Bank vs Postbank Review & Summary Analysis - Pro & Institutional and Deutsche Bank vs Postbank Review & Summary Analysis - Retail for a detailed overview and analysis of the unusual Deutsche Postbank situation.

*Texas ratio = (Non-performing and past due loans + losses on sovereign debt)/ (Tangible equity + Provision for loan losses)

DBPost Bank PIIGS

We started this project from scratch with no pre-conceived notions and came up with the usual suspect nations in regards to claims exposure to the PIIGS. Wait! There are conditions to that finding though. Conditions that I haven't seen in the myriad array of sell side reports that we have perused. Subscribers are urged to view File Icon Irish Bank Strategy Note before we move on to understand the limits of using simple foreign claims as a guage of potential risk events. Our proprietary sovereign contagion models (icon Sovereign Contagion Model - Retail (961.43 kB 2010-05-04 12:32:46) and File Icon Sovereign Contagion Model - Pro & Institutional) address the shortcomings of this perspective in complete detail, and I will expand on those shortcomings in a future post, hopefully later on today.

Below is a screen shot of the summary of 29 page professional version of the PIIGS exposed bank analysis.

Bank PIIGS page 1

Subscribers can download this document here: File IconEuro Bank Soveregn Debt Exposure Final -Retail and File Icon Euro Bank Soveregn Debt Exposure Final - Pro & Institutional

The complete Pan-European Sovereign Debt Crisis analyiss (and its origins), to date are available free to the public: The Pan-European Sovereign Debt Crisis!

Last modified on Monday, 17 May 2010 05:06

14 comments

  • Comment Link sports handicapping,sports betting,sports handicapping services,sports betting tips,sports betting, sports betting advice,free sports picks,sports betting picks,free picks,sports betting lines, Vegas sports betting lines, sports betting experts,betting on Monday, 02 December 2013 20:39 posted by sports handicapping,sports betting,sports handicapping services,sports betting tips,sports betting, sports betting advice,free sports picks,sports betting picks,free picks,sports betting lines, Vegas sports betting lines, sports betting experts,betting on

    Vegas Winning Crew is a sports handicapping service that boasts consistent daily winning sports picks, but actually takes more pride with the level of customer service delivered to each client which is unmatched by any other service in the world. When you choose this service, you will be with confidence knowing that our own money is also riding on every pick we release. This is why we put forth the most extensive research into every selection in order to reduce the odds of losing and increase the probability of winning.

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  • Comment Link Jason_J Monday, 17 May 2010 09:10 posted by Jason_J

    Any brokers besides IB that I can get puts on foriegn banks?

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  • Comment Link Reggie Middleton Friday, 14 May 2010 12:33 posted by Reggie Middleton

    Well, considering the amount of money they pumped into the system, it was just a matter of time before they were able to get real manufacturing going. The problem is who is going to buy it with Europe in freefall and the US consumer unemployed.

    That is the reason why the demand for their auction is so low.

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  • Comment Link shaunsnoll Friday, 14 May 2010 11:02 posted by shaunsnoll

    this is not good...
    http://www.businessweek.com/news/2010-05-14/china-273-day-bill-auction-fails-to-draw-enough-bids-update2-.html


    but this is good
    http://www.chinadaily.com.cn/bizchina/2010-05/14/content_9851113.htm

    lot of mixed signs coming out of China

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  • Comment Link Reggie Middleton Friday, 14 May 2010 06:49 posted by Reggie Middleton

    BTW, I am working on posting some pretty fancy stuff up here this weekend, to coincide with what I believe will probably be the beginning of a long and vicious slide in the Euoropean markets which will spread to the other major continents.

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  • Comment Link Reggie Middleton Friday, 14 May 2010 06:47 posted by Reggie Middleton

    More glitches to fix. In the meantime let's have the conversation out here, just be wary of reveling "pay only" content.

    the reason why I suggested IB was because they make it easy to trade multiple asset classes and exchanges from a single account. I agree, user friendly they are not.

    I also recommend you look into trailing stop losses. Better to be stopped out of a trade prematurely than not to get stopeed out at all and take an unnecessary loss.

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  • Comment Link hmc Thursday, 13 May 2010 23:22 posted by hmc

    And I hate the damn login procedures that IB put in place earlier this year!

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  • Comment Link hmc Thursday, 13 May 2010 23:21 posted by hmc

    When I click on the link, it states "You do not have access to this forum".

    Oh, and I do have an Interactive Brokers account, but I lost most of the money that was in the account. And I prefer the UI on Fidelity much more then IB! The Options calculator is nice on Fidelity as well. Regardless, I'll use that account if I have too for the foreign banks.

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  • Comment Link Reggie Middleton Thursday, 13 May 2010 13:37 posted by Reggie Middleton

    Be aware that there are additional fees (exchange fees and data fees) as well as explicit currency exchange rate risks that may apply.

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  • Comment Link Reggie Middleton Thursday, 13 May 2010 13:36 posted by Reggie Middleton

    Let's start this discussion in the private retail subscriber forum here: http://boombustblog.com/index.php?option=com_kunena&Itemid=42&catid=31&func=showcat

    Be sure to urge others to participate in these public forums.

    Fidelity is a retail users account, so you may have issues with foreign exchanges. Try a firm such as Interactive Brokers

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  • Comment Link hmc Thursday, 13 May 2010 13:26 posted by hmc

    Seeking some investment advice! Maybe we can get some of the more senior level subscribers help the more junior level investors? Maybe a private section under the site would be more appropriate to discuss this?

    That siad, I just downloaded "Euro Bank Soveregn Debt Exposure Final -Retail" actionable.

    If you guys had to pick 1 or 2 from the France/Germany banks, which ones would you buy PUTs on and at what strike price/expiration date?

    There is only one bank that I see in my Fidelity account! How do I short the others on a foreign exchange?

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  • Comment Link Reggie Middleton Thursday, 13 May 2010 10:27 posted by Reggie Middleton

    Not necessarily. I am not commenting on the likelihood of acquisition. I think it was a dumb deal to begin with, but there are a lot of contingencies to deal with here. They are detailed in the subscription docs.

    I put the info out for subscribers to decide for themselves. I'm just the messenger.

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  • Comment Link shaunsnoll Thursday, 13 May 2010 10:19 posted by shaunsnoll

    so it would seem you think the odds of acquisition here are low?

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  • Comment Link macfly Thursday, 13 May 2010 10:17 posted by macfly

    Great work Sherlock!

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