In continuing with my rant against the ratings agencies (see Interesting Documentary on the Power of the Agencies) I bring you additional evidence that their seemingly incompetent behavior leading up to the 2008 market crash is nothing compared to what is going on today... And many think the agencies have reformed!!! Subscribers, a B-L-O-C-K-B-U-S-T-E-R forensic report update based upon the banking situation described herein is currently in the works and will probably follow this post (tomorrow). Stay tuned, for I found a company that is trading at roughly 10x its intrinsic value, and that's putting it conservatively. I will release the research on this company to lenders and then the public a few weeks after I have released the details to subscribers, so be sure to download and absorb as much information as you can. As you read the following, keep in mind how many warnings you've heard from the rating agencies about those real estate concerns...
As reported this morning by FT.com:
The eurozone debt crisis has triggered a severe credit squeeze across the region with banks imposing significantly harsher loan terms and demand for credit tumbling, a European Central Bank survey has shown. Banks’ weakened finances and worries about the eurozone’s future led to an aggressive tightening of credit standards faced by businesses and households at the end of last year and early 2012. Demand for mortgages and loans to fund corporate investment also fell sharply, the survey showed.
I have been warning of this since very early 2010, to wit:
Sovereign Risk Alpha: The Banks Are Bigger Than Many of the Sovereigns
I also warned about a year later in Is Another Banking Crisis Inevitable? 04 February 2011
and even last month in...
The First Major Real Estate Collapse In Europe? I've Found The EU Equivalent Of GGP, The Largest Real Estate Failure In US History Monday, 19 December 2011
What many do not understand is that the real estate crash of the previous decade is far from over, because The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance. This is true for not only the US, but the EU countries as well. Unlike our European and Asian counterparts, many US investors are much too detached to what occurs overseas, quite possibly from a hubristic, apathetic or even ignorant stance that what happens over there has littel effect on us stateside. Unfortunately, that is not the case. What do you think, pray tell, happens when the liquidity starved, capital deprived, overleveraged banks fail to roll over all of that underwater Eu mortgage debt?
Investors seeking safety in Germany, the UK and France may truly be in for a rude awakening!
Do you really think they will rollover the US debt anyway? How about the result of the guaranteed losses that both bank and investor will take as said debt either fails to get rolled over or is forced to do equity cramdowns? Then think about EU banks going down and American banks being called to pay CDS!
Okay, back to the FT.com excerpts...
Germany, however, remained immune.
Do you remember when I warned about GroupThink creating lopsided risks in the market? Reference The Biggest Threat To The 2012 Economy Is??? Not What Wall Street Is Telling You...
The results suggested December’s unprecedented injection into the financial system by the ECB of €489bn in cheap three-year loans had failed to prevent a retrenchment by banks that could hamper the region’s economic recovery. The effects of the central bank’s actions are still feeding through, however, and the ECB will be relieved that the tightening of credit conditions is not yet as severe as after the collapse of Lehman Brothers investment bank in September 2008.
Well, that' because a European bank hasn't collapsed yet. It's not as if they haven't tried, though.
Reference The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!...
Below is a chart excerpted from our most recent work showing the asset/liability funding mismatch of a bank detailed within the report. The actual name of the bank is not at issue here. What is at issue is what situation this bank has found itself in and why it is in said situation after both Lehman and Bear Stearns collapsed from the EXACT SAME PROBLEM!
Note: These charts are derived from the subscriber download posted yesterday, Exposure Producing Bank Risk (788.3 kB 2011-07-21 11:00:20).
The problem then is the same as the European problem now, leveraging up to buy assets that have dropped precipitously in value and then lying about it until you cannot lie anymore. You see, the lies work on everybody but your counterparties - who actually want to see cash!
Using this European bank as a proxy for Bear Stearns in January of 2008, the tall stalk represents the liabilities behind Bear's illiquid level 2 and level 3 assets (including the ill fated mortgage products). Equity is destroyed as the assets leveraged through the use of these liabilities are nearly halved in value, leaving mostly liabilities. The maroon stalk represents the extreme risk displayed in the first chart in this missive, and that is the excessive reliance on very short term liabilities to fund very long term and illiquid assets that have depreciated in price. Wait, there's more!
The green represents the unseen canary in the coal mine, and the reason why Bear Stearns and Lehman ultimately collapsed. As excerpted from "The Fuel Behind Institutional “Runs on the Bank" Burns Through Europe, Lehman-Style"...
And back to the FT excerpts again...
The ECB’s bank lending survey - conducted between December 19 and January 9 - followed Friday’s weak December lending data that showed the sharpest monthly fall in outstanding corporate loans since records started in 2003. The ECB said participants had “explained the surge in the net tightening of credit standards by the adverse combination of a weakening economic outlook and the euro area sovereign debt crisis, which continued to undermine the banking sector’s financial position”.
It added: “The prevalence of tightening appeared to be widespread across larger euro area countries, with the notable exception of Germany.”
... For mortgage loans to households, the balance reporting a tightening of credit standards rose from 18 per cent to 29 per cent – the highest since January 2009. Demand for mortgages slipped further, with the balance reporting a decline over those reporting increases rising from 24 per cent to 27 per cent.
Hmmmm! Mortgages? Methinks Reggie's admonitions on European CRE has come to pass, eh? Also from The First Major Real Estate Collapse In Europe? I've Found The EU Equivalent Of GGP, The Largest Real Estate Failure In US History Monday, 19 December 2011
Then think about those sovereign states that truly cannot afford to bail out their banks.
Click the following pages to englarge...
Those who wish to download the full article in PDF format can do so here: Reggie Middleton on Stagflation, Sovereign Debt and the Potential for bank Failure at the ING ACADEMY-v2.
I have actually discussed the Dutch market in depth at the ING conference...
Yes, "The Real Estate Recession/Depression is Here, Eurocalypse Style". We have already identified a Dutch real estate short candidate - subscribers (click here to subscribe), please download Northern Europe CRE short candidate #1. This company is suffering from a variety of maladies that, on an individual basis, may not seem that bad but once aggregated put it on the same path that GGP was on. The difference? This is after the so-called economic recovery, in the conservative EU state of the Netherlands, and right before the massive rate storm that will bethe Pan-European Sovereign Debt Crisis that I have warned about since 2009. The result, many properties that will either be difficult or impossible to refinance or roll over. Again, subscribers, reference Dutch REIT Debt Analysis, Blog Subscriber Edition. This is a succinct illustration of how this company will not be able to rollover much of its debt, and the absolute lack of recognition of such by the markets. Of interest is the fact that the number 3 short candidate on our short list is over 50% owned by this company (which came in as #!). With friends such as that, who needs enemies!
Q&A and discussion, part 1
Q&A and discussion, part 2