Research

Wednesday, 29 May 2013 15:10

Is Tim Cook Cooked? Market Share vs Profit Margin, part 2 - Follow What I Do, Not What I Say!

Tim Cook was in the media yesterday weighing in on market share. It's as if he is in a delirium, that is if you believe his words, which I don't. He states that for Apple, quality is more important than quantity (or something of that sort). As per Endgadget:

Apple's head honcho Tim Cook is chatting up Android's growth explosion, and it turns out he's not flustered. "Do I look at that? Of course, I don't have my head stuck in the sand," said Cook." But for us, winning has never been about having the most." Instead, he stands by the old Apple line of quality versus quantity. "Arguably, we make the best PC, but we don't make the most," he added. "We made the best music player, and we wound up making the most -- but we didn't initially."

Mr. Cook is ignoring his own ex-boss's words. For those who didn't read my piece yesterday, "Blackberries, Apples & Fruit Borne Successitis - The Problem With Excess Profits Is Hubristic Management Tends To Take Eyes Off The Prize!!!", I quote:

What ruined Apple was not growth … They got very greedy … Instead of following the original trajectory of the original vision, which was to make the thing an appliance and get this out there to as many people as possible … they went for profits. They made outlandish profits for about four years. What this cost them was their future. What they should have been doing is making rational profits and going for market share.

You see, my post yesterday clearly showed that the financial metrics, over time and in handset companies, heavily favor market share over initial profit margin. As a matter of fact, I demonstrated that as market share decreases margins drop commensurately, or in other words "Quantity is quality in a fast moving, technologically dynamic market!"

In early 2010 I warned on Blackberry (then RIMM), with market share loss to Android being the prime determinant... Many More Black Eyes for the Blackberry? A Complete Forensic Analysis of Research in Motion. I put significant data out in the public domain to illustrate my point and put explicit price points out for subscribers, ie. RIM Smart Phone Market Share, RIP? Was I right?

Blackberry market share vs margin correlation analysis

The has been the case with IBM, Nokia, Dell, HTC, Apple, Blackberry, etc. Mr. Cook, take the advice of Mr. Jobs if you don't wish to follow Mr. Middleton. I actually do believe that Cook understands these dynamics and is just putting on a dog and pony show for the media but his corporate actions don't bear this out. I strongly suggest they start spending that $174B cash horde on something other than massaging hedge funds.

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So, does Mr. Cook's lack of adherence to Steve Jobs wisdom portend a potentially uber-successful company misunderstood by the markets (meaning time to buy stock) or is this the beginning of the end of an iconic corporate era?

I refer my subscribers to the research documents below for the answers...

Subscribers, download the Q3 2013 valuation reports (click here to subscribe).

The update from two months ago is also of value for those who haven't read it. It turns out that it was quite prescienct!

Monday, 27 May 2013 21:20

Blackberries, Apples & Fruit Borne Successitis - The Problem With Excess Profits Is Hubristic Management Tends To Take Eyes Off The Prize!!!

Sameer Singh posts Apple & Samsung's "Profit Share" Trap on Tech Thoughts blog:

Over the past few days, there has been a lot of noise in the tech media about the supremacy of "profit share" over "market share", specifically related to Apple's performance in the smartphone market (but it can be extended to Samsung as well). Most proponents of this argument seem to fundamentally misunderstand the long-term relevance of the "profit share" metric.

Exactly! I've been preaching this mantra since the beginning of my coverage of the mobile computing sector. Let's recap...

In early 2010 I warned on Blackberry (then RIMM), with market share loss to Android being the prime determinant... Many More Black Eyes for the Blackberry? A Complete Forensic Analysis of Research in Motion. I put significant data out in the public domain to illustrate my point and put explicit price points out for subscribers, ie. RIM Smart Phone Market Share, RIP? Was I right?

Blackberry market share vs margin correlation analysis

I explained this in detail in the post "Cost Shifting Your Way To Prominence Using The Network Effect, Or Google Wins - Apple, RIM & Microsoft Have ALREADY LOST!". Failure to achieve the network effect effective is tantamount to a failure to be able to control you margins, long term. Of all people to of know this, who do you think preached it most convincingly? Take note:

What ruined Apple was not growth … They got very greedy … Instead of following the original trajectory of the original vision, which was to make the thing an appliance and get this out there to as many people as possible … they went for profits. They made outlandish profits for about four years. What this cost them was their future. What they should have been doing is making rational profits and going for market share.

Who did I just quote? None other than the RDF Chief in Charge, Steve Jobs (circa 1995 Forbes interview)! So, if he was able to see what happened to his baby in the '90s, what happened in the new millennium? I certainly warned it would happen again, see this three year old article - A Glimpse of the BoomBustBlog Internal Discussion Concerning the Fate of Apple. In Apple on the Margin I showed the margin fade coming ahead of time, as well as in the following references:

So,Apple's top management knew how this worked. I knew how this worked. What happened? Who the hell cares, a short is a short. Next up was the contrarian call of the decade, but it took very little intelligence and as much as I'd like to claim credit for being a genius... all you had to do was watch the trend.

$34,852,564,500 - That's How Much BoomBustBlog's Apple Research Was Worth Today!

So, now the question remains, "Is Apple a steal at these prices?" Well Doug Kass seems to think so (Doug Kass: 4 Reasons Apple Is Turning Around - CNBC) and I'd love to discuss this with him on air or, or both! This was discussed here in detail - Is It Time To Buy Apple As A Valuation Play? The Contrarian That Called The Top In Apple Weighs In.

I refer my subscribers to the research documents below for the answers...

Subscribers, download the Q3 2013 valuation reports (click here to subscribe).

The update from two months ago is also of value for those who haven't read it. It turns out that it was quite prescienct!

Friday, 24 May 2013 15:49

Deadbeat Carriers Compete, aka #MarginCompression!!!

Following up on the many emails, but not so many actual site comments from yesterday's post "Deadbeat Carrier Creative Destruction In The Ongoing Mobile Computing Wars" I bring you hard evidence that there's about to be a massive disruption in the telecomm space. We're not just talking Google Fiber here. The smallest, most upstart of carriers has broken the holy grail and did away with multi-year, hardware subsidizing contracts while at the same time materially boosting its bandwidth, coverage and throughput. This means that the price-gouging competitors are going to fave that Apple thingy, #MarginCompression.

As states in yesterday's post, T-Mobile's subway experience delivers Verizon FiOS speeds via LTE. Well, T-Mobile must have read that post for they turned LTE on in Brooklyn and that's what I'm using to make this very article. It's very fast, very cheap, its opening in more places than many would have thought. What does this mean? It means prices will probably collapse across the board, you know... #MarginCompression. It ain't just Apple, RIMM and Nokia!

For those who don't believe my, I come bearing gifts. First, a pretty charts...

Reggie Middleotns Carrier Cost Comparison

Wait until people realize how much they are actually paying for those "free", subsidized phones... Then things will really get interesting...

Reggie Middleotns Carrier Subsidy Cost Comparison

My next gift is your ability to generate your own chart with your own wasted wireless carrier dollar expenditures. Check it out..

Of course, this doesn't look to good for Microsoft or Intel, for the Android camp is encroaching on the Wintel camp much faster than the Wintel camp is returning the favor.

I have a lot of thoughts and ideas circling these developments. Institutional and professional subscribers (click here to subscribe) are welcomed to email or call me to discuss this further.

Deadbeat Carrier Creative Destruction In The Ongoing Mobile Computing Wars

I have personally tested the T-Mobile LTE service in a NYC subway (the 42^nd street station) using what is currently the best (big brand) mobile handset available, the LG Optimus G Pro.

20130522 140401 3799

The speeds I attained are phenomenal for a cell phone. This combo is more than capable of replacing a small business or home network Internet connection through FiOS or AT&T.

This is a similar LTE speed test performed in the AT&T store in Union Square, NYC.

20130522 143033 26462

The majority of my work is now done off of smart phones, so I know this stuff fairly well. AT&T charges roughly 3x what T-Mobile would charge for about 31GB of bandwidth use, while T-Mobile delivered 2.5x the speed. Now, T-Mobile's network is not under load yet, and results can vary by location, weather, yada, yada... Long story short, if T-Mobile continues to focus on being a pure play pipe provider, AT&T and Verizon will need to get their shit together!!!

T-Mobile, if they play their cards right, can truly shake up the industry. If you did not already know, T-Mobile has eliminated carrier subsidies of handsets and has instead given a 0% APR (allegedly, although an implied rate could be built into the price of the hardware) loan to have the user pay for the device directly, and has reduced the price of its plans commensurately. T-Mobile has also dropped contract requirements totally and has made a big push into its pre-paid plans with an offer of unlimited data. It is this option that makes a lot of sense for power users and techies. Today's Android phones (ex. the LG Optimus G Pro) have more than enough oomph to power an office - and I mean it. I actually do it.

With a 14 - 32mbs always on connection, you can fully replace Microsoft Office, your overpriced DSL, FiOS, AT&T, etc. connection, and your overpriced cell phone carrier with a single phone, some inexpensive peripherals and a single $70 per month ($76 with all taxes and fees included) T-Mobile plan.

This is a very big deal, for if consumers start using their heads and pull out a calculator or two, AT&T and Verizon have an awful lot of price slashing to do, and the likes of the pretty but considerably less functional OEMs such as Apple have a lot of R&D and production ramping to do as well.

You have heard me predict this in the past.

April and May 2012 I opined on the carriers

US Cellular Carriers Are At Risk Of Being Marginalized Into Nothingness Unless They Learn To Think Outside The Box... Yesterday

The Death Of The Deadbeat Carriers, Part 2

This week I opined on Apple, et. al.

Is It Time To Buy Apple As A Valuation Play

What Sell Side Wall Street Doesn't Understand About Apple - It's Not The Leader Of The Post PC World!!!

Of course, this doesn't look to good for Microsoft or Intel, for the Android camp is encroaching on the Wintel camp much faster than the Wintel camp is returning the favor.

I have a lot of thoughts and ideas circling these developments. Institutional and professional subscribers (click here to subscribe) are welcomed to email or call me to discuss this further.

Published in BoomBustBlog

Tuesday, 21 May 2013 16:33

Is It Time To Buy Apple As A Valuation Play? The Contrarian That Called The Top In Apple Weighs In

All who have followed me over the last three years know I've taken a very strong stance on the mobile computing wars, their prospective winners, losers and the benefits/pitfalls to be had from such intense competition. Outside of possibly Goldman Sachs, the most controversial, blindly beloved company that I've called a short on was Apple. Now that I think of it, Apple has Goldman beat hands down. After first warning of impending margin compression with 18 quarters of October 2010, I've been reviled by every fanboi this side of the Valley. Now, it's vogue to say #MarginCompression!

For those who are not the type to pay for analysis, the following video and graphic contains everything you'd ever want to know about Apple past, present and potentially future. For those of you who are willing to pay for quality analysis, I answer the question that should be on everyone's mind, "Is it time to now buy Apple as a deep value play?" After all, the move that I've warned about has came and gone, or has it. Subscribers, see download links at the bottom of this article.

Click the graphic once to view, twice to enlarge to printer quality...

Reggie Middletonss Ultimate Apple Value Infographic

Subscribers, download the Q3 2013 valuation reports (click here to subscribe).

The update from two months ago is also of value for those who haven't read it. It turns out that it was quite prescienct!

Thursday, 16 May 2013 10:07

Google Spreads Its Wings Launching A Plethora Of Game Changing Products & Initiatives Causing Analysts To Scramble To BoomBustBlog

On Monday I posted Google Q2 2013 Update: Valuing Possibly The Most Powerful Co. In The World?, an update on Google's valuation and target price points for my subscribers. In said piece, I illuminated the massive misunderstanding of Google's business model. I consistently hear pundits bang on the table screaming, "But nearly all of Google's revenue comes from advertising!!!" That's the point! Google monetizes nearly ALL of its ventures through advertising, whcih is why it can actually outgrow the pace of online advertising growth and still be the biggest player in the game. It rides the rising tide while still pumping water under its surfboard.

Google has almost consistently outgrown the adoption rate of web advertising. What does this mean? Well, it means that although Web advertising is getting bigger and more popular as a slice of the total advertising pie, Google is getting even bigger and more dominant in the space – not less. Google is beating competition back even as the market grows!

How does it do this? Google management thinks BIG, very BIG! Think about it...

Android - takes over mobile computing, literally! It has passed 900 million devices activated, with 48 billion app downads. That's nearly a billion, a force to be reckoned with for any developer, marketer or advertiser. Just two years ago, I had to cram this concept down the throats of develoepers and advertisers - One Reason Why Software Developers & Tech Firms Should Pay Close Attention To Research Boutiques Such As BoomBustBlog

Notebook computing that drives prices towards zero...

Commercial speed internet access (1 Gbit) for the price of cable TV (that's 100x the speed of cable internet access, both ways - up and downstream), meet Google Fiber and understand that now 14 year olds can produce and distribute their own TV shose from their mommy's basement. Speaking of which...

YouTube- takes over visual media production and consumption, as they now have subscription video channels ala Netflix (accept iy can upload your own content) - YouTube confirms subscription model, and here are the partners ...

Self driving cars - self explanatory

Google Glass - transforms personal and mobile computing

I can go on, as a matter of fact, I think I will. Google has released some blockbuster products and flops, the key is they're not afraid to experiment, and like Microsoft, they don't give up at the first sign of failure. Remember, it often takes 99 "No's" to get one "Yes". Google Wallet is one such product. It faced extreme industry pushback, primarily because it stepped on too many toes, particularly those toes that spend a lot of money on lobbying (the banking and financial services industry). Now, it looks as if management is going grass roots, bringing the world's most ubiquitous "Free" email system to the ability to send money as an attachment. That's right, GMail now allows you to send cash as a simple attachment. This is much more convenient than PayPal, wiring funds, or practically anthing else I can think of.

With this many projects in the pipeline, Google's revenue and profit potential dwarfs that of Apple - the purveyor of pretty, shiny things...

Subscribers, click the following links for my updated price targets on Google (click here to subscribe):

The biggest risks to these price points are:

A market that's being levitated by central bank magicians running short on magic spells...
Regulatory pressure, which I feel is quite material and inevitable, but will not be a major factor in the near term.

Published in BoomBustBlog

Monday, 13 May 2013 14:03

Google Q2 2013 Update: Valuing Possibly The Most Powerful Co. In The World?

Note: New research is available for subscribers at the bottom of this article.

This research report is going to be a bit different. As you know, I chose Google as my stock pick in the 2^nd Annual CNBC Stock Draft – after winning it last year with Google. This (as with most of my public moves) proved to be both contrarian and controversial. There were other companies to choose from (which I will share with my subscribers over the upcoming weeks), but do to my father passing away and the fact that I run a subscription service, I did not have the time parse a pick that wasn't the purview of my subscription service.

Alas, Google will do just fine and I believe it has a very strong future – as long as the stock as long as the market doesn’t come crashing back to reality!

As per Google’s CEO, they “had a really strong start to 2013, with Q1 revenue up 31% year-on-year to $14 billion.” This tends to overshadow the real strength in Google’s performance, and that is its very significant investment in future products and innovations. Again, as per the CEO, “Over the last two years, we worked hard to increase our velocity, improve our execution, and focus on the big bets that will make a difference in the world.”

If you remember Apple’s Siri, you remember a microcosm of the universe in which Apple and Google exist, complete with their strengths and weaknesses. Apple is a marketing behemoth, but their engineering lacking in relation to their data hungry adversary. Google is an engineering behemoth, although their marketing may be a tad understated for certain shareholder’s tastes – and particularly when compared to Apple. Siri essentially is a flop. As for Google Now, Google’s version of Siri (which predated Siri)…

“Take Google now, our goal is to get you the right information at just the right time. Launched nine months ago, Now provides boarding passes, delivery updates, and traffic conditions without you having to ask first. In this quarter, we added movie tickets nicely packaged with directions to the theatre. I am also excited about our Voice Search momentum. Looking for the nearest pharmacy, just ask Google for directions, and we’ll deliver them instantly, no typing needed. And you can now ask conversational questions like do I need a jacket this weekend. Voice commands are going to be increasingly important, it's just much less hassle to talk than type.”

The importance of Google’s voice command technology cannot be understated. These are examples that I just used for those unfamiliar with the tech.

As compared to the closest competitor, Apple's Siri...

These commands take even more precedent when viewed in context of Google's biggest launch of the year, Glass....

Google is in the final phases of launching a product, a product that is to personal productivity as the smart phone was to computing. The company is up about 10% since that video about a month and change ago...

Google since April 16th 2013

From the latest quarterly valuation update for BoomBustBlog subscribers (click here to subscribe):

BoomBustBlog releases its updated valuation on Google Inc. The stock has registered a +47% return since our last valuation update in March 2012.

Google continues to play a dominant-leader role in the online advertisement and search market. Its market share in online advertisement has been consistently growing not only in the US, but also in the other geographies. Besides being a leader in the online advertisement market, the company has been continuously taking initiatives to broaden its product and service offering. The last year has seen a number of (now) well-known products.

The continuous endeavor to diversify product and services through sustained efforts in research & development forms an important component of our valuation. While we expect that the company will continue to grow its revenue off its leading space in the advertisement and search market, its ability to diversify its future revenue in different streams is a key to the current valuation. We therefore expect its revenue to grow along a more diversified route. This statement requires some explanation, for most still don’t seem to understand the Google business model. Google monetizes the vast majority of its initiatives through ad revenue. This causes many to label Google’s various ventures as a failure, due to being misled by cost shifting. Google cost shifts through a myriad of products, disrupting entire industries, then monetizes the results through “Ad Revenue”. Thus, looking for direct revenue streams from Android is fruitless in comparison to searching for strength in ad revenue bolstered by Android.

Google has almost consistently outgrown the adoption rate of web advertising. What does this mean? Well, it means that although Web advertising is getting bigger and more popular as a slice of the total advertising pie, Google is getting even bigger and more dominant in the space – not less. Google is beating competition back even as the market grows!

Google ad growth

Published in BoomBustBlog

Thursday, 09 May 2013 18:57

Which Banks Are We Looking At To Shop For Assets?

Following up on the post from this morning,"Preparing Resources To Shop For Distress…", I'm releasing the followup t our Distressed Asset Sale Initiative for pro and institutional subscribers (click here to subscribe or upgrade) - File Icon Distressed Sales From EU Sovereigns and Banks V.2.0.

As excerpted:

Update Note - European Bank Deleveraging

In our last report on European Bank Deleveraging in May last year, we had highlighted that the European Banks would be forced to shrink their balance sheet by way of asset-sale, reduction in lending and scale-back of their retail business. We had also mentioned why banks would be required to deleverage, and to what extent European banks have planned their asset sale categorized by:

(1) Banking Activities (Investment banking, Corporate, Retail)

(2) Asset Category (Banking, Insurance, Asset Management, etc), and

(3) Location (Asia, Latin America, EU and North America)

The Global Financial Stability Report (GFSR) released by IMF (International Monetary Fund) in April 2012 had estimated that EU banks (a sample of 58 banks in IMF GFSR April 2012) would reduce assets by $2.6 trillion (under the base policies scenario) over the period from Q3 2011 to Q4 2013 (10 quarter estimate).

Actual data for 5 quarters ending Q2 2012 shows that a number of euro area banks have taken steps in the direction to deleverage although the pace of effort has somewhat slowed down after Q1 2012 due to ECB’s efforts to relieve funding pressure on banks. The assets of the sample banks fell by around $600 million from Q2 2011 to Q2 2012 (source: IMF’s GFSR October 2012 report). The period Q4 2011 accounted for a major share of the above decline.

Which banks actively initiated deleveraging?

A number of large European banks decreased their exposure during Q4 2011 and Q1 2012. The decline was notably the highest in the peripheral euro area, around 12% in Q4 2011 and Q1 2012 combined, compared to the decline in other regions, namely other advanced regions in Europe, emerging Europe, emerging Asia, Latin America and other parts of the world. The chart below shows the percentage decline in exposure of European banks by regions in Q4 2011 and Q1 2012.

Published in BoomBustBlog

Thursday, 09 May 2013 11:45

Preparing Resources To Shop For Distressed Assets As Banks Refuse To Come Clean On Near Fraudulent Reporting

As the equity markets are benefiting from the forced zero rates of central banks world-wide, I remain cognizant that the core problems of the crash five years ago have went absolutely nowhere. As I have demonstrated to all that I am no perma-bear in calling the contrarian pair trade of the decade (short Apple: Deconstructing The Most Accurate Apple Analysis Ever- long Google: Reggie Middleton Goes For 2nd Win On CNBC Stock Challenge & Causes TROUBLE!!!). I'm not pessimistic, I'm realistic! My recent rant on the Irish banks included the post that pretty much laid out the evidence of a potential Irish bank collapse - "If I Provide Proof That The Entire Irish Banking System Is A Sham, Does It Set Up A Much Needed System Reboot? Let's Go For It... I followed this up with a stern warning to Irishmen - "As Forewarned, The Irish Savers Have Just Been "Cyprus'd", And There's MUCH MORE "Cyprusing" To Come". Who do you believe, me or your Irish government? Let me give the skeptical readers a little assistance...

Just a month and a half ago, we've had Irish officials proclaiming...

Hey, ninety days or so later... guess what?

These banks are likely to need a recap, a recap that will likely get a sloppy and ugly. I visited the UAE this time last year and noticed that would be an excellent source of capital for a shopping spree based upon the EU Bank deleveraging. It prompted me to detail my thoughts to subscribers for I was preparing to raise capital.

Distressed Sales from European Sovereign Nations and Banks Page 01

This is just a portion of the report released (subscribers can find the full report in the Global Macro Section of the downloads area). One page in particular was particularly prescient, page 9... Remember what happened two months ago before you read this and be sure to notice the dates on the embedded documents... Bank deleveraging is REAL!!!

Distressed Sales from European Sovereign Nations and Banks Page 09

I have updated versions of this distressed asset acquisistion document which I will post for institutional subscribers later on in the day. Any institutions or high net worth individuals interested in my plans should feel free to contact me.

Published in BoomBustBlog

Tuesday, 07 May 2013 17:53

It's Not Just Reggie Warning Irishmen Anymore As Irish Presidency of the European Council Says Capital At Risk

Kiss Those Euros Goodbye As of today, all of the puzzle pieces for an Irish government cum ECB via Germany confiscation of Irish bank depositor money is in place. The first piece, Irish bank insolvency was clearly identified and articulated in "If I Provide Proof That The Entire Irish Banking System Is A Sham, Does It Set Up A Much Needed System Reboot? Let's Go For It... I drove the point home even further as the Irish PTB start to admit that their banks need to be recapitalized, in "The Beginning Of The Great Irish Unwind?!?!?!". The second piece of the puzzle is the political will to actually sacrifice bank depositors, clearly illustrated in "As Forewarned, The Irish Savers Have Just Been "Cyprus'd", And There's MUCH MORE "Cyprusing" To Come". Now as of today, we have the final piece, the legal mechanism - which allegedly is just being debated but in reality is already in place. The template has already been established with Cyprus, ala "EU Bank Depositors: Your Mattress Is Starting To Look Awfully Attractive - Bank Risk, Reward & Compensation".

The Irish are about to see their deposits above the 100k euro insured limit hit risk heretofore unseen. You see, weeks after my many warnings of Irishmen and women at financial risk, the Irish presidency of the European Council put forth a proposal to do just what I warned of ahead a key meeting of finance ministers next week. Whats of even more importance is the fact that, as in Cyprus, EU states have NOT ruled out the possibility of confiscating bank deposits below the EU insured limit of 100k euro. This means that there is far from a AAA credit covering your deposits. It almost happened a month or so ago, and nobody wants to rule put the potential of it happening again. Now, on to the news piece that has confirmed my many warnings, the last piece of the puzzle - from the Irish Times: Bank deposits of over €100,000 may be at risk...

Deposits of over €100,000 are likely to be hit in the event of future European bank collapses, according to a proposal put forward by the Irish presidency of the European Council ahead of a key meeting of finance ministers next week.

Discussions on the controversial bank resolution regime, which is likely to see savers with deposits over €100,000 “bailed in” as part of future bank wind-downs, are due to intensify this week in Brussels, ahead of Tuesday’s meeting, which will be chaired by Minister for Finance, Michael Noonan.

Under a compromise text proposed by the Irish presidency, uninsured deposits of over €100,000 would be bailed in in the event that a bank is resolved, but depositors would rank higher than other creditors in the event of a wind-down. In this scenario – known as “deposit preference” – depositors would rank at the very end of the process, with other creditors first absorbing losses.

"In this scenario – known as “deposit preference” – depositors would rank at the very end of the process, with other creditors first absorbing losses." Absolute non-sense. Simply smoke and mirrors for those who don't know any better. The only reason for there to be a wind-down in the first place is that there is no equity left in the bank. With gearing in the European banking model what it is, and the dearth of transparent (non-fraudulent) reporting what it is (see If I Provide Proof That The Entire Irish Banking System Is A Sham, Does It Set Up A Much Needed System Reboot? Let's Go For It...), the chances of there being any recovery is somewhere between zilch and nil, give or take a euro or two - reference LGD 100+: What's the Possibility of Certain European Banks Having a Loss Given Default Approaching 100%? and The Anatomy of a Serial European Banking Collapse to realize that once a counter party driven bank run starts, there may be less than nothing to divy up in the end. Lehman Brothers' US creditors received roughly 10 to 40 cents on the dollar, but after 5 years of wrangling, the European International arm was full repaid. Hey, do you feel lucky with your life savings? Even if you do feel lucky, you'll still need 5 years to spare and a ton of cash for legal fees.

However, some member states have not ruled out the possibility that insured deposits, i.e. deposits under €100,000, would be forced to bear losses in the event of a bank collapse even though these deposits would be likely to be protected by the deposit guarantee scheme.

As stated earlier, this ain't AAA coverage!

This year Jeroen Dijsselbloem, head of the group of 17 euro zone finance ministers, said that losses on bondholders and depositors could form part of future bank bailouts as euro zone officials seek to move the burden of bailouts away from taxpayers – as was the case in the Irish bailout – and on to private investors.

The European Commission argues that this switch from so-called “bailouts” to “bail-ins” would result in an allocation of losses that would not be worse than the losses that shareholders and creditors would have suffered in regular insolvency proceedings that apply to other private companies.

Ahem, that non-sense only works on the uneducated and/or the unassuming. The major difference is that creditors that would be subject to regular dissolution proceedings AND that are unsecured, would demand considerably higher rates of return. A borderline solvent bank whose officers AND regulators admit publicly is in need of additional capital infusions after receiving three thus far, and 96% losses in its publicly traded equity, would have to borrow money at 18%, not 2% - and that's being generous. See the bank deposit rate calculator below.

While the inclusion of large savers in future bank bailouts is now widely accepted, significant differences still remain between member states.

While the new rules governing bank resolution were first intended to come into place in 2018, since the Cypriot bailout there have been calls from senior EU figures such as European Central Bank president Mario Draghi and EU economics affairs commissioner Olli Rehn to introduce the new regime as early as 2015.

The Irish presidency of the European Council is hoping to reach a common position by the end of next month.

The little app below calculates what return you should expect to receive to take on the risk of a potential 40% haircut. The second tab offers what recent Cyprus bank rates were. Do you see a disparity???

Other hard hitting pieces on the resurgent EU banking crisis

Published in BoomBustBlog

Displaying items by tag: Research

Is Tim Cook Cooked? Market Share vs Profit Margin, part 2 - Follow What I Do, Not What I Say!

Blackberries, Apples & Fruit Borne Successitis - The Problem With Excess Profits Is Hubristic Management Tends To Take Eyes Off The Prize!!!

Deadbeat Carriers Compete, aka #MarginCompression!!!

Wait until people realize how much they are actually paying for those "free", subsidized phones... Then things will really get interesting...

Related articles...

Deadbeat Carrier Creative Destruction In The Ongoing Mobile Computing Wars

Is It Time To Buy Apple As A Valuation Play? The Contrarian That Called The Top In Apple Weighs In

Google Spreads Its Wings Launching A Plethora Of Game Changing Products & Initiatives Causing Analysts To Scramble To BoomBustBlog

Google Q2 2013 Update: Valuing Possibly The Most Powerful Co. In The World?

Which Banks Are We Looking At To Shop For Assets?

Preparing Resources To Shop For Distressed Assets As Banks Refuse To Come Clean On Near Fraudulent Reporting

Hey, ninety days or so later... guess what?

It's Not Just Reggie Warning Irishmen Anymore As Irish Presidency of the European Council Says Capital At Risk

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Wait until people realize how much they are actually paying for those "free", subsidized phones... Then things will really get interesting...

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Hey, ninety days or so later... guess what?

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