A discussion on bank bailouts, bank runs and other fun things to do with your hard earned dollars... Plus a simple solution to prevent such occurrences.
Let there be no mistake, most have been "Bamboozled by the Banking Industry"
Dipping into the BoomBustBlog archives with "Bank Run" on the brain???...
So, does BNP have a funding problem, or is it at risk of the same?
BoomBustBlog subscribers know full well the answer to this question. I'm also going to be unusually generous this morning being that our prime French bank run candidate has approached my "crisis" scenario valuation band. So, as to answer the question as to BNP, let's reference Bank Run Liquidity Candidate Forensic Opinion - A full forensic note for professional and institutional subscribers, and otherwise known as BNP Paribas, First Thoughts...
The WSJ article excerpted above quotes BNP management as saying: "The bank has €135 billion in "unencumbered assets after haircuts" that are eligible to central banks."
OK, I'll bite. Excactly how did BNP get to this €135 billion figure? Was it by using Lehman math? Methinks so, as clearly delineated in my resarch report on the very first page:
The following two pages of this report go on to reveal the games being played to potentially come up with a figure such as the 135 billion quoted above. Boys and girls, I fear those may be Lehman bucks!
For those not familiar with the banking book vs trading book markdown game, I urge you to review this keynote presentation given in Amsterdam which predicted this very scenario, and reference the blog post and research of the same:
- a research note to subscribers, The Inevitability of Another Bank Crisis,
- followed by blog posts on the same, see Is Another Banking Crisis Inevitable?, as excerpted...
But wait, there's more - much more!
This document is 19 pages full of stuff that BNP management may have forgotten to tell you, as well as valuation for both "crisis" and bailout scenarios. What you have before is an anecdotal 5 pages. To put this in perspective particularly since no on the sell side warned about French bank risk before the fact, let's look at the chart as of the day this research was released and I'll let you tell me if it was worth the subscription...
Roughly 50% and falling as Vol and gamma explode!
Just to add a sense of chronological depth to this post, let's revisit the timeline from yesterday's piece, "As The French Bank Runs....":
Saturday, 23 July 2011 The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!: I detail how I see modern bank runs unfolding
Thursday, 28 July 2011 The Mechanics Behind Setting Up A Potential European Bank Run Trade 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
I also provided a very informative document for public consumption which clearly detailed exactly how this French bank collapse thing is likely to go down: French Bank Run Forensic Thoughts - pubic preview for Blog - A freebie, to illustrate what all of you non-subscribers are missing!
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.