Wednesday, 29 February 2012 10:22

So, Can Europe Nationalize All Of Its Troubled Banks? Place Your Bets Here Featured

In a discussion that I had over at ZeroHedge there came the topic of whether bank runs are possible in Europe. Well, I believe we've already had some devastating one's (ex. Northern Rock) but if one takes the continent only or the EZ in particular, we still have a significant systemic threat. The gist behind the argument is that if the true economic capital is weakened to the point that depositors/creditors/counterparties make a run for it, the sovereign nation in which it is domiciled will simply nationalize it. Hmmm... Let's take a look at how that might work out, as excerpted from Overbanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe March 2010

I will attempt to illustrate the "Overbanked" argument and its ramifications for the mid-tier sovereign nations in detail below and over a series of additional posts.

Sovereign Risk Alpha: The Banks Are Bigger Than Many of the Sovereigns

image015.png

 

Imagine the Swiss nationalizing just UBS and Credit Suisse, whose assets constitute 500% of the Swiss GDP. THAT'S JUST TWO BANKS!!! Imagine if the entire banking system got into trouble from daisy chaining European defaults??? 

This is just a sampling of individual banks whose assets dwarf the GDP of the nations in which they're domiciled. To make matters even worse, leverage is rampant in Europe, even after the debacle which we are trying to get through has shown the risks of such an approach. A sudden deleveraging can wreak havoc upon these economies. Keep in mind that on an aggregate basis, these banks are even more of a force to be reckoned with. I have identified Greek banks with adjusted leverage of nearly 90x whose assets are nearly 30% of the Greek GDP, and that is without factoring the inevitable run on the bank that they are probably experiencing. Throw in the hidden NPAs that I cannot discern from my desk in NY, and you have a bank that has problems, levered into a country that has even more problems.

image009.png

If BoomBustBloggers remember, I went on a tear with my theory of European bank runs last summer. Reference:

I strongly suggest that any interested in the topic peruse the links above if they haven't already done so. They drive the point home. And on the topic of Greece and bank runs, ZH runs Greek Bank Deposit Outflows Soar In January, Third Largest Ever

According to just released data from the Bank of Greece, January saw Greeks doing what they do best (in addition to striking of course): pulling their money from local banks, after a near record €5.3 billion, or the third highest on record, was withdrawn from the local banking system. As a result, total bank cash has now dropped to just €169 billion, down from €174 billion in December, and the lowest since 2006. This is an 18% decline from a year ago, or €37 billion less than the €206 billion last January, and is a whopping 30% lower than the all time deposit highs from 2007, as nearly €70 billion in cash has quietly either left the country or been parked deep in the local mattress bank.

 

Were the big Greek banks effectively nationalized already? Don't the depositors and counterparties/creditors know that Bank of Greece and the ECB have their backs. I mean, come on now. Paranoia is simply going too far. MG Global account holders may be getting some of their monies back, as is somebody who had an account somewhere in Lehman. I remember when I made this warning about Bear Stearns back in January of 2008 (2 months before Bear Stearns fell, while trading in the $100s and still had buy ratings and investment grade AA or better from the ratings agencies). Nobody wanted to listen: Is this the Breaking of the Bear?

 

Once again, do I have a crystal ball??? Or just a spreadsheet??? After all, the ECB just injected a record amount of junk collateral backed, near ZIRP liquidity into the European banking system - Helicopter Ben style - a half trillion Euro worth, or 3/4 trillion dollars or so. And to think, many believe Hip Hop music and iPhones to be one of the biggest US exports:-) Of course, everybody on the sell side sees this as bullish - reference Cascade is to Domino as Greece is to Por… and Does Anyone See This Emergency As An Eme… for a more common sense approach to this ECB bailout of bailouts. As for just why such a massive liquidity injection was necessary? Well, as this excerpt from the subscriber edition of the BNP Paribas report is marked...

 

image014_copy

 

image017_copy

'Nuff said! Subscribers, as (not if, but as) this breaks, these are the companies trading at the valuations that are most shortable/profitable in my opinion...

US CRE

European Insurance

Last modified on Thursday, 01 March 2012 09:09

www.boombustblog.com | This email address is being protected from spambots. You need JavaScript enabled to view it.

12 comments

  • Comment Link outlet woolrich veneto Monday, 02 December 2013 22:00 posted by outlet woolrich veneto

    Its great as your other posts : D, regards for posting . "To be able to look back upon ones life in satisfaction, is to live twice." by Kahlil Gibran.

    Report
  • Comment Link negozi woolrich milano Monday, 02 December 2013 20:10 posted by negozi woolrich milano

    Thanks for helping out, wonderful info .

    Report
  • Comment Link certilogo moncler Monday, 02 December 2013 19:21 posted by certilogo moncler

    Good write-up, I am normal visitor of one's site, maintain up the excellent operate, and It's going to be a regular visitor for a lengthy time.

    Report
  • Comment Link moncler vendita online Monday, 02 December 2013 13:53 posted by moncler vendita online

    I gotta bookmark this web site it seems very useful very helpful

    Report
  • Comment Link giubbotti moncler 2013 Monday, 02 December 2013 13:29 posted by giubbotti moncler 2013

    Merely wanna input that you have a very nice website , I enjoy the style it actually stands out.

    Report
  • Comment Link buy duvetica online Monday, 02 December 2013 10:49 posted by buy duvetica online

    Simply wanna state that this is very beneficial , Thanks for taking your time to write this.

    Report
  • Comment Link negozi woolrich Monday, 02 December 2013 07:42 posted by negozi woolrich

    Nice read, I just passed this onto a colleague who was doing some research on that. And he actually bought me lunch since I found it for him smile So let me rephrase that: Thank you for lunch! "We have two ears and only one tongue in order that we may hear more and speak less." by Laertius Diogenes.

    Report
  • Comment Link negozi moncler Monday, 02 December 2013 05:22 posted by negozi moncler

    A person necessarily lend a hand to make seriously articles I might state. This is the first time I frequented your website page and thus far? I surprised with the research you made to make this actual publish amazing. Wonderful job!

    Report
  • Comment Link woolrich jassen uitverkoop Monday, 02 December 2013 01:13 posted by woolrich jassen uitverkoop

    Some truly prize content on this web site , saved to my bookmarks .

    Report
  • Comment Link woolrich outlet veneto Saturday, 30 November 2013 20:07 posted by woolrich outlet veneto

    I was reading through some of your posts on this website and I believe this site is very instructive! Retain posting .

    Report
  • Comment Link oreo 5s Friday, 29 November 2013 09:42 posted by oreo 5s

    I bought these oreo 5s last fall and provide them pretty much everyday! I cherished them ; how adorable they seemed above ! I definitely will probably be buying these all over again this calendar year!

    Report
  • Comment Link wholesale jerseys Friday, 29 November 2013 00:25 posted by wholesale jerseys

    you can get costly nfl sports activities jerseys also since the ones with economical charges.
    wholesale jerseys http://www.greenlodgingcalculator.org/sportjerseys/

    Report
Login to post comments