Wednesday, 03 August 2011 10:47

France, As Most Susceptble To Contagion, Will See Its Banks Suffer Featured

As the Pan-European ponzi scheme starts to unravel, I would like to take this time to remind all of the value of this new media, this medium of reporting and opinionated analysis known as the blogosphere. To my knowledge, there are very, very few public sources where one can the granular information that would allow one to not only identify, not only circumvent, but actually profit from global banking collapse. Yes, the mainstream media has its placed, burned permanently in the psyche of content consumers, but it is nigh time the blogosphere moved several rungs up the evolutionary ladder. If you recall, it was a (BoomBust)blog that warned of the pending collapse of Bear, Lehman, WaMu, and Countrywide.

And so it begins...

Last year I was invited to give the keynote speech at ING's Commercial Real Estate Valuation seminar in Amsterdam. The keynote was delivered in April, and let there be no mistake - I pulled no punches.

To give you an idea of the tone that I set in this very large European financial insitution, this was the opening slide to the presentation...


Although this was a real estate valuation seminar, the premise was consistent throughout: A dearth of available financing through a weak banking system coming off of a real asset and credit bubble burst spells big trouble. The "big trouble" is much worse than many make it out to be. You see, the one thing that nearly all banks lend against is real estate, and the less banks lend against said real estate, the less said real estate is worth. A vicious, self-reinforcing circle of real asset price correction in an attempt to reach equilibrium.

So, what does this have to do with French Banks?

Well, the big thing in the media nowadays is the sovereign debt crisis. But this crisis is but one part of the solvency puzzle, albeit a big one. Basically, the banks are saying we have XX billion Euro on our balance sheets, when in actuality they have 80% of XX billion euro, at the same time asset values are steadily declining, chewing up equity along the way. I illustrated this in detail in the video above. You see, the concerted efforts of global financial central planners world wide have distorted the valuation and pricing of real asset markets. This distortion has led many to believe that the crash/correction of 2008 is over without us ever having to face true reversion to the mean. Let me be the one to tell you, that just ain't happening... Reference Do Black Swans Really Matter? Not As Much as ...

I have always been of the contention that the 2008 market crash was cut short by the global machinations of a cadre of central bankers intent on somehow rewriting the rules of economics, investment physics and global finance. They became the buyers of last resort, then consequently the buyers of only resort while at the same time flooding the world with liquidity and guarantees. These central bankers and the countries they allegedly strive to serve took on the debt and nigh worthless assets of the private sector who threw prudence through the window during the “Peak” phase of the circle of economic life, and engaged in rampant speculation. Click to enlarge to print quality…

The result of this “Great Global Macro Experiment” is a market crash that never completed. BoomBustBlog subscribers should reference File Icon The Inevitability of Another Bank Crisis while non-subscribers should see Is Another Banking Crisis Inevitable? as well as The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance.

 I will go into the impending continuation of the real estate debacle in a later post, but the impetus behind the debacle is the topic du jour, Is Another Banking Crisis Inevitable?In said piece I made it clear that the global banking lie that the so called "risk free" assets carried on the books are not only far from "Risk free" but have wiped much, if not most of the tangible equity from banking books. When, not if, but when, these banks are forced to make a market price transaction, hell will break loose. My post last month, Eighteen Percent of the EU is Literally Junk, Carried As Risk Free Assets at Par Using 30x+ Leverage: Bank Collapse is Inevitable!!! basically says it all.

Referencing the material from the ING presenation..

Eurocalypse Cometh! Principal Haircuts, Serial Bailouts, ECB Insolvent! Disruptive Sound Of Dominoes In Background Going "Click, Clack"! BoomBustBloggers Instructed To Line Up Bearish Positions Again! 

If one were to even come close to marking the EU banks books to reality, market prices, or anything in between, the Lehman situation would look tame in compariosn! As excerpted from the subscriber document: File Icon The Inevitability of Another Bank Crisis

(click to enlarge) Even using overly optimisitic and much too rosy Eurostat numbers, the banks are sitting on top of a huge equity hole. The blue box below covers what we feel are the real numbers - a truly gaping hole!

And in the End, What Does It All Mean?

LGD 100+: What's the Possibility of Certain European Banks Having a Loss Given Default Approaching 100%?

It is not as if this wasn't foreseeable, for I have been warning of this hole since 2009/early 2010. In the BoomBustBlog subscriber document File Icon European Bank's Greece exposure, I gave the macro warning. I drilled down to more specifics namin the bank I felt was most at risk in this subscriber document. The follow up to this document was going to come out late today, but the CEO has let the cat out of the bag.

FT reports SocGen profit warning on Greek debt:

 Société Générale has warned that its profit target for 2012 will be “difficult to achieve” as a writedown linked to its Greek exposure weighed on quarterly results. 

...Frédéric Oudéa, chairman and chief executive, cautioned that the group’s €6bn net income target for 2012 looks hard to reach “within the scheduled time frame”.

...However, he said that second-quarter results demonstrated the “resilience” of Société Générale, despite the inclusion of a €395m pre-tax writedown due to Greek government bonds held by France’s second-biggest bank.

The writedown is due to Société Générale’s pledge to play a role in the Greek bail-out plan finalised in July in which all the Greek bond holdings of the French banks maturing before 2020 will be involved. BNP Paribas and Crédit Agricole have also made provisions concerning the loss to bondholders.

Société Générale has no bonds which mature after 2020, a spokeswoman said, adding that the writedown includes sovereign bonds held by Geniki Bank, Société Générale’s Greek subsidiary.

Net income in the three months to June 30 was below consensus analyst expectations at €747m on revenue down 2.6 per cent to €6.5bn, but including the impact of the writedown.

Net income for the first half declined 22.5 per cent to €1.66bn on revenue down 1 per cent to €13.12bn. The group posted half-year earnings per share of €2.05, down from €2.75 last year.

The bank’s shares fell 6.94 per cent to €30.25 in early morning trading.

Société Générale, which last year unveiled a plan to double net profit by 2012, said that targets had assumed a return to a normal economic environment which “has not occurred,” naming the recent eurozone and US debt crises, as well as the political turmoil in the Middle East and Africa as concerns.

I will have some more goodies along these lines that still HAVE NOT been broached by either the pop media or the sell side for BoomBustBlog subscribers very soon.

Tools for tracking the ever elusive path of contagion for BoomBustBlog subscribers:

More On My Observations Of The French!

Trading the BoomBustBlog Forensics: Observations From The Field

Unsurprisingly CAC had a plunge yesterday, one of the worst performers in all of the European markets - exactly as we have warned, reference Observations Of French Markets From A Trader's Perspective and excerpts from European Bank Run Trading Supplement Available for Download:

The Monthly chart, with only one more trading day left tomorrow [Friday] shows we are breaking the monthly trendline at 3910 THIS month (July), even though on a weekly basis, there were a few weeks this month where it was below already.

That’s a quite NEGATIVE new development, with the 1st natural target being around 3600 (high above the trendline was 4200, break point  3900 - so a 300 point range) that 3600 level is the Nov10 low.

 Additional posts on the topic of Bank Runs

  1. The Mechanics Behind Setting Up A Potential European Bank Run Trade and European Bank Run Trading Supplement
  2. What Happens When That Juggler Gets Clumsy?
  3. Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such
  4. Greece Is Fulfilling Our Predictions Of Default Precisely As Predicted This Time Last Year
  5. The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!
  6. The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!
  7. Multiple Botched and Mismanaged Stress Test Have Created The Makings Of A Pan-European Bank Run
  8. Observations Of French Markets From A Trader's Perspective
  9. On Your Mark, Get Set, (Bank) Run! The D…

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