In 2010 I penned a public post based upon subscriber research called Is Another Banking Crisis Inevitable. In it I presumed that serial and or cascading sovereign defaults will break the European banking system. Aside from calling me "Doom and Gloomer", has anyone really come close to proving me wrong? Short answer? Hell no!
...and in today's news...
Troika officials are expected to give the thumbs up to Portugal's efforts, releasing about EUR15 billion to fulfill financing needs. Including that installment, Portugal will have received 70% of the bailout money since the program began mid-2011.
Pressure on Portugal's rescue program, however, has been growing amid fears the country won't be able to return to the market for financing in September next year as expected.
Last week, Citigroup said in a report that the recession should intensify over the next years, making the country's debt-to-GDP ratio increase more than expected and above the 120% the troika finds sustainable in the long term.
Therefore, Citi economists say, Portugal will require a Greek-like haircut of 50% of its debt.
Hmmm. More massive haircuts? I thought this Grecian move was the solution, not the problem. Then again, why should anyone else pay their bills if Greece is allowed not to pay theirs? Common sense, eh? From the Globe and Mail: "Portugal and Ireland will ask for a similar deal. Why wouldn't they?"
While it is not known whether Portugal has asked for equal treatment, Ireland was hunting for concessions even before Greece and the troika - the European Commission, the IMF and the ECB - confirmed Greece's second bailout after a 14-hour negotiating session that ended early Tuesday morning.
Ireland has been lobbying the ECB to cut the cost to the government of bailing out its banks, whose collapse triggered the Irish rescue.
"If the ECB are prepared to make this kind of concession to Greece, it would encourage me to think that they might be ready to make concessions on the promissory note to Ireland," Irish Finance Minister Michael Noonan said earlier this month.
The troika, however, has said that Greece's special treatment - notably the bond "haircut" - is a one-off event that was necessary to keep Greece from defaulting and potentially shredding the 17-country euro zone.
Offering the same terms to Portugal and Ireland is not on the table, if only for the sake of the stability of the bond market.
Well, I've warned about this last year and even went so far as to not only issue forensic reports on the banks, insurers and countries which I feel would be most affected, but have even offered downloadable models to allow subscribers (click here to subscribe) and even some of the free readers to calculate their own opinions. Reference the following models with their varying degrees of sophistication...
- BNP Exposures - Professional Subscriber Download Version - A full forensic look at both liquidity (funding sources vs liabilities) and solvency (writedowns)
- BNP Exposures - Retail Subscriber Download Version Calculates sovereign debt writedowns vs tangible equity
- BNP Exposures - Free Public Download Versionhot A freebie that definitely get's the job done.
As you can see from the screen shot below, just putting in today's writedowns, after effective recovery standing behind the ECB and the IMF (yeah, let's not forget to factor in reality), and not even bringing much into the discussion outside of the PIIGS debt, BNP still has a significant tangible equity hit. Now just imagine a cascading default which will assuredly go outside of the PIIGS confines and most definitely ding France something awful and you will find the equity slasher's blade will be bloody.
One place to look for pain in the cascading PIIGS default is France, as quoted last summer...
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 minimal) 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!
BoomBust BNP Paribas? as excerpted...
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!
Next up on this topic, we will delve into BoomBustBlog subscriber documents to see who else is carrying exposure somehow overlooked by both the sell side and the MSM.