The Anatomy of a Serial European Banking Collapse

Reggie Middleton's picture

This is part two of our recap of the European Bank Exposure analysis
that we released last year in anticipation of a total refresh next week
encompassing all of the interesting turns of events. In order to get a
full appreciation of the gravity of the capital trap that the European
banking system is in, and by extension the European commercial real
estate markets, I humbly request that you review the last four
BoomBustBlog posts on this topic before you move on, including the
videos of my keynote presentation at the ING CRE Valuation seminar in
Amsterdam. The video walks through the capital trap quandary that the
European banking system is in from a bird's eye level. In this article
we will drill down to the street level by illustrating a French bank
featured in last year's analysis:

  1. Over
    A Year After Being Dismissed As Sensationalist For Questioning the
    ECB's Continued Solvency After Sovereign Debt Buying Binge, Guess What!
  2. Click, Clack, Click: The Sound of Falling Dominoes Behind The Door of the Eurocalypse!
  3. LGD 100+: What's the Possibility of Certain European Banks Having a Loss Given Default Approaching 100%?
  4. Greece Reports: "Circular Reasoning Works Because Circular Reasoning Works" - Or - Here Comes That Default!!! 
  5. 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!

has been my belief that the global market crash of 2008 brought upon by
the US mortgage/housing market bubble bursting has never finished.
Massively collaborated attempts at global finance central planning have
stalled the plans of Mother Markets, but her wrath cannot be held at
bay. Reference Do
Black Swans Really Matter? Not As Much as the Circle of Life, The
Circle Purposely Disrupted By Multiple Central Banks Worldwide!!!

for my complete take on the situation. In the meantime, let's look at
what French banks did to claw for yield as the US bubble popped in the
2007/2008 period. As derived and excerpted from icon Euro Bank Soveregn Debt Exposure Final - Pro & Institutional (934.65 kB 2010-05-13 00:11:32):


can be seen from above, it is not only the US who has piled leveraged
unit of fiat currency upon leveraged unit of fiat currency in an attempt
to spin gold out of spider webs. Indeed, you can't even blame just the
members of the PIIGS anymore, either, for although they gorged on debt -
someone had to supply said debt and there is still such a thing as risk
management and/or due diligence. No?


is the result of throwing pound after pound of leveraged fiat currency
meat into the hungary maw of an overweight European brown bear who is
naught to give it back nor make good use of it? Let's ask one of the
banks from year's report...


you can see, the haircut estimtes we used last year actually pale as
compared to what Mother Market is enforcing this year. With that in
mind, remain cognizant that the numbers you are about to see were based
upon proposed losses that are nearly half of what they are today! The
update to this document will have the more recent loss figures for the
banks, using a realistic methodology, and not the "delay and pray"
accounting smoke and mirrors currently reported as results by many banks
- and as allowed by their regulators. For those who wish to access our
most up to date figures, there are subscriber-only online spreadsheets illustrating NPV of losses from probable restructuring scenarios:


A 63 Texas Ratio when losses were half of what they are now????!!! As
Americans, and TExans from the S&L Crisis area know, a Texas Ration
of 100% generally means no more bank!


Where would said Texas Ratio madness come from? Why, exposure - of course!



Remember the mark to market game being played as detailed in Is Another Banking Crisis Inevitable? and as illustrated in the Amsterdam ING Conferene video...


Well, as I explained in both New Amsterdam (Haarlem, Manhattan) and Amsterdam (Netherlands), this restructuring thing is going to spike rates, which will in turn spike cap rates, whick flatten commercial real estate in a very big way. Guess who's exposed to all of the above...



As a sneak preview of the stuff we're putting out next month, check the exposure creep...


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Zero Govt's picture


Many thanks for sharing your thorough research, data-mining and number-crunching with us, some of whom have skin in the game with these banks (!)... i had zero idea until your previous pieces French Banks were so exposed though is it any surprise given the opaque nature of Govt, international banking and accountancy

In a nutshell if Greece goes (ie. gets no bailout or if it does and the Greeks oust The Pap' family) do the Frogs go tits-up or do we need another such as Spain or Italy before they meet their maker?  

Zero Govt's picture

Reggie, in your "Click, Clack, Click.. Europocalypse" you wrote "The assumption of no default over 2010-2012 appears reasonable given that the EFSF is made up of a €720bn lending facility." Do you still hold to that timeline?

surfsup's picture

Thanks for posting this Reggie...   Really great stuff and makes it even more clear that the end game is to attempt to foist onto populations of PIIGS an unpayable debt bondage -- which in and of it self -- could never achieve the mending of the levering.   Sometimes things get so big they are hard to see.  The Earth itself looks quite flat from the personal fixed perspective.  However, true intelligence always boils things down to their most simple components -- often times in direct contradiction to the common perception.    The gaming of productivity could only have one true outcome -- but truly as well reality appears to be quite a do it yourself proposition...

Compare this and all models of the Victorian Age Genesis with how Nature does it.  The Sun does not stop for a second and asks for nothing in return -- keeps the entire environment growing, building and eternally abundant.  Along comes the animal men who from their roots well before, yet levered up in the Victorian Age saw as a projection that the commoner is but an animal. Artifically boiling him down thus to his most simple animal nature stripping away the holistic view of Inherent Abun_dance and seemingly perpetuated a form of hypnosis or collective conditioning where exploitation and gaming were seen as "just business..."   (Here seems to be where the real monkey's are... )

However, as equilibrium finds its mean in the equation the void is filled as if by magic and ultimately things unravel from point of $ource.  By you simplifying things Reggie it helps the regular people (and well meaning bankers) to unhook from the madness and generational conditioning whereby all such gaming of production could be tolerated as a "normal" part of the human condition.  Such things being then "unwound" in one's mind -- the sheath falls away -- and the basic components r seen in full view; that man/woman is only an animal in as much as unruly gamers choose so degrade the external world -- which is only ever a reflection of what an individual devolves to when attempting to "get one over" on another as a habit of volition -- as if so called good business pays -- as all have been so instructed from an age gone past to strive for -- and at the same time staring into the abyss of natural outcomes when such things are put to play upon the general collective... 

Thus why you can go into an Institution of Banking like ING and most have no clue what is really going on.  Again, this goes centuries back so simple and direct information is always so refreshing and cathartic.  No matter how bad it gets and no matter how dark the rabbit Whole is we are looking at -- We are fortunate to look out into all things Natural and see (notwithstanding mental contortionistas like Darwin et all) ongoing abundance and productivity.  The very basis of Life IS productive not diabolically selective, however the catch to that is that a peson will not perceive that if they themselves are serving to put one over on another -- and thus all Darwin devolutionary dribble will indeed be perceived as THEIR reality -- perhaps it was even artificially concocted as an early form a PR so as to make man/woman see themselves as chattel and accept it?  It is quite clear the worm is turning on that one in our times -->

So thanks Reggie for lifting the human condition through what you do to boil it down, $imply...   Let good people stay fixed on fixing things for the greater good that people of questionable intelligence and perception foisted upon a trusting and noble humanity... 


Euro crisis is what?  Greek people who just prefer welfare and are slackers as we are told?  Oh... no... Its that banks levered up and those investments fell back considerably taking the books down exponentially...  Two sets of books at banks?  Say it aint so...   Hmmm, is it all just a huge case of chasing a bad trade and doing more damage instead of taking the hit at stop loss?  Sure seems so...     

You're awesome Reggie!!! Thanks ZH for pipelining the good stuff...   You are indeed a scholar and a Gentleman!!! 

TheMerryPrankster's picture

Enough to make a banker drink. This can't be good for upper management bonuses. Shall we rent  out the summer house or burn it down for insurance?

Buck Johnson's picture

I agree with you Reggie, we never got out of 2008 they just papered over it.  And by them doing it they will take down the EU and the US economies.

YHC-FTSE's picture

Thanks - Bookmarked for later. There's a lot of material to cover here mate. 

jointhewave's picture

Watch the YouTube video...

The Manchurian President - A story of war and deception


Absolutely amazing, cunning and enlightening short film depicting the collapse of Empire America.

Roger Knights's picture

Ragin' contagion


DaveyJones's picture

"and there is still such a thing as risk management and/or due diligence. No?"


forgot to remove the question mark

BigJim's picture

     ...What we have hear is EXACTLY...

Reggie, you're a great man. But you're clearly not so great when it comes to grammar or spelling. Could you please get someone to edit your posts before you post them?

This may seem petty, but you have an important message to spread, and the Sheep are put off by such things. 'Well,' they bleat to themselves, 'what Reggie says seems pretty serious. And he's got lots of great charts to prove what he's saying. But he doesn't know the difference between 'hear' and 'here', so I can safely ignore him and go back to sleep.'

(my spelling and grammar aren't great, either, but then - I'm not contributing articles to ZH)

Going Loco's picture

I guess the person who junked you doesn't care about spelling. But really it's just another sign that our civilsation is collapsing. Even the really bright and switched-on people, like Reggie Middleton and Nadeem Walyat cannot spell. Sad, but there you go. By this time next year I anticipate we will have bigger things to worry about.

hardcleareye's picture

Some people's brains are not hard wired to be proficient in spelling..... to say that it is a "sign that our civilization (fixed that for ya..) is collapsing" is an example of hyperbole....

I applaud Reggie self confidence, that he is not intimidated by the "grammar Nazis.....".  He writes as he speaks.  When reading his written work I hear his spoken words and the inflections in them...

His words are a pleasure to read


BigJim's picture

Indeed, some people's brains are not wired to be proficient at spelling. Reggie's brain is clearly wired to get his head around complex financial analysis, which is considerably more valuable to us than his spelling.

However, I'm sure there are lots of people who do not have his analytic proficiency, but who can spell, and who would love the chance to polish the spelling and grammar of his articles, so why not get one of these people to make his articles even better than they already are?

Virtually all the great novelists have editors, people who themselves could not possibly have come up with the novels, but who can tweak them to be even better.

falak pema's picture

Is that all you see...maybe you have an inside track we don't all enjoy. Like seeing behind his blanked out portions of presentation; you know that one can only see with infra red "seal" goggles. Need a hard clear eye to see through all that blue stuff!

BTW the Chinese caper will maybe help solve the size of remedial haircuts. If China converts on an ongoing basis its USD reserves into national euro PIGS keep one western market above the water line. 500 Billion EURO pump? No problem...but at what return price?...that is the 64000 question.

Diogenes's picture

Spelling doesn't matter much most of the time but once in a while it makes a big difference. Like the Scotchman who thought the Ladies door said Laddies.


Or "It is no time to panic" versus "It is now time to panic" lol.

FeralSerf's picture

Separate toilet facilities for women and men are a waste of money as are all those "Ladies" and "Laddies" signs.

sbenard's picture

Reggie, you are the BEST!

g's picture

Great read Reggie.

He_Who Carried The Sun's picture

Boy, where did you find these cute charts, they must be about 200 years old, are they not?

Anybody who suggests that these banks have merely been sitting on their hands during the last two years, is a complete moron.

SheepDog-One's picture

Insolvent yes....but isnt that 'better n expected', therefore bullish or something?
The wheels will fall off as soon as the free money to the insolvent banks is squeezed off, just like 2008.

walküre's picture

The US is insolvent on August 2nd, 2011.

What is going to happen?

The shit will hit the fan as more and more Americans will realize they've been lied to AGAIN.

Obama couldn't fix anything and he couldn't bring any CHANGE and there's little HOPE.

There's always HOPE but Americans are by nature an impatient people and want results.

Forget the people that read blogs like these. The people on the street are waking up and when on August 2nd, 2011 their e-food stamps don't work you will have absolute mayhem.

LawsofPhysics's picture

Ditto for any politician from either of the two central parties.  

Crash the fucking system already, the sooner we do, the sooner compensation will return to people who are actually worth a shit.  Enough with the fraud and enough with letting FEAR (oh no, we are going to have mayhem, wah, wah, wah) keep these corrupt fuckers in power.

Karl Napp's picture

Trading in UniCredit, Intesa SanPaolo was temporarily suspended this morning.

THE DORK OF CORK's picture

Hi Reggie
26 % drop in Irish GNP from Q1 2007 to Q1 2011

Absolutely savage

GNP @ current market prices : Q1 2007 = 40,650 million euros Q1 2011 = 30,017 million euros

IQ 145's picture

 What a very useful reminder. Boom, and Bust, ehh? Well, I'm still all for the silver bullion as a savings account; but then I've been wrong before.

kaiten's picture

Well, so you cut the fat(housing bubble). Congratulations. Well done. Now you can start growing again.

THE DORK OF CORK's picture

Irish Private sector credit is still contracting Kaiten - peak 400 billion - roughly 76 billion and sinking.

We are The Fools of Europe - we should stuff those greedy bastards mouths with near worthless punts.

THE DORK OF CORK's picture

Its a bet on whether Lady Lavery will sleep with you or not.

hardcleareye's picture

So how did it come to be, that an American Lady adorns the Irish notes?


THE DORK OF CORK's picture

Perhaps she was the best looking woman we could find at the time.

Still optics do not matter much - the BOE controlled this Bog through the Bank of Ireland at the time.

Our independence was based solely on the strange policey of painting everything green..............

FeralSerf's picture

The Irish seem to have forgotten the lessons of the Irish Holocaust.   They trusted the English banks then just as they seem to be trusting them now.  It didn't turn out well the last time and it's difficult to see how it will turn out well this time.

Any bank that's stupid enough to loan its depositor's (or taxpayer's) money to someone that is obviously not able to repay said loan deserves to lose said money.  Loaning money to Irish land developers to build houses that any idiot should have been able to see had no realistic market was insanity.  Ditto for many of the other infrastructure "improvements".  The repayment of those loans by the Irish (that didn't do the borrowing in the first place) is even more insane.

The Irish are getting fucked royally by the international financial services industry just like the Greeks (and Germans) are.  They can't repay, just like the Greeks (and the Americans).

kaiten's picture

The housing collapse was a huge shock for irish economy, no wonder credit is still contracting (by inertia). Im quite sure, though, that the irish economy will be in a good shape few years down the road. And also much healthier. I have some doubts about the greek, portuguese, and perhaps spanish economy, but I have absolutely no doubts about the irish one. There´s a very healthy core on which you can build on. Im also quite sure that the irish (and also portuguese and greek) debt will be restructured. It just cannot be done now, in this panic situation. Eurozone core have no reason and interest in suffocating peripheral economies under mountains of debt. It´s good for no one. But a bit of patience is needed.

walküre's picture

Give me California's GNP data please.

Who cares about Ireland?

Going Loco's picture

The Irish.

And the British banks.

And anyone who is owed money by the British banks.

And so on.

G-R-U-N-T's picture

"As you can see, the haircut estimtes we used last year actually pale as compared to what Mother Market is enforcing this year."


"And then you can use the Law of Diminishing Returns to show that attempts to re-flate the bubble by means of bailouts or other liquidity techniques have to fail. The problem is that each bailout has a smaller effect ("diminishing return") than the previous one had, and so you have to substantially increase the size of each bailout for it to have the same effect as the previous one."

Manthong's picture

“a full appreciation of the gravity of the capital trap that the European banking system is in, and by extension the European commercial real estate markets,”

And by extension the FED?

LawsofPhysics's picture

"And by extension the FED?"

...and by extension, the U.S. taxpayer.

walküre's picture

"the US taxpayer" ROFML

There is no such thing as THE US taxpayer!

Get that into your numb American skull.

The US taxpayer is tapped out, flat ass broke, maxxed out, got no leverage and so on.

The Greek taxpayer is more solvent and liquid than the US taxpayer, BUT the Greeks are gaming the system and cheating on their taxes.

That is the problem and it's going to stop.

If anything, Greece and Europe by extension are much better off than the US because they are taking the bitter medicine of austerity now!

The US simply can't cut back and it can't extend anymore!

Focus on the public US finances please. That is the true recipe for desaster.

Greece is a side show if anything.

Zero Govt's picture

Walkure : "BUT the Greeks are gaming the system and cheating on their taxes."

Don't consider it "cheating" consider it Greeks keeping their hard-earned away from the real "cheaters" the parasitical criminals behind Govt (like the Pap' family)

"That is the problem and it's not going to stop."

Hopefully 'the problem' will increase (throughout the West) which will bring the problem (the real one of Govt) to a well-deserved end drowning in the sewer of history. Amen to that enlightened day of freedom 


MolotovCockhead's picture

The US simply can't cut back and it can't extend anymore!


That's why TPTB is putting  up all the necessary Police State infrastructures in place. FEMA camp, TSA, Patriot act, War on Terror........and much more. Actually, they are just waiting for the humen excrement to hit the fan.

FeralSerf's picture

"... they are just waiting for the humen excrement ..."

And they've got plans for it already -- a perpetual motion machine:

FeralSerf's picture

"There is no such thing as THE US taxpayer!

Get that into your numb American skull."

Bullshit!  There is a US taxpayer.  S/he is the one with savings and a pension (incl. the "Social Security" system)  she has paid into for the last many years of his/her working life.  It is being stolen by a criminal banking establishment's (which has their representatives making and enforcing the kleptocracy's laws and regulations)  so-called "ZIRP".  The banks don't get paid the zero interest, BTW.  (They get much more.)  The victim "saver" gets the zero interest (really much less than zero after taxes and inflation).  It is grand theft on a grand scale.

"... the Greeks are gaming the system and cheating on their taxes."

More absolute MSM/bankster bullshit!  (But they do have the German proles believing it.)

"Focus on the public US finances please. That is the true recipe for desaster."

More bullshit!  Focus on the financial "services" industry, the real black hole that is consuming Planet Earth's wealth.

walküre's picture

Social security is going to default.

The US is going to default. If it's not declared bankrupt, it will hyper inflate.

How many of the 300+ million Americans are able to keep supporting the state?

FeralSerf's picture

The root problem is not the state.  The State is in the employ of the Zionist Kosher Nostra financial "services" industry, the giant vampire squid that's sucking the wealth out of all of the planet's unwitting sheep.  Social security is just one of the pension and savings funds that is falling victim to The Big Theft.  Entire countries are being embezzled away.

The real question should be how many of the 300+ million Americans (or 6+ billion Earthlings) are able to keep supporting the Biggest Criminal Enterprise the Earth has ever seen.

LawsofPhysics's picture

Who is controlling things is irrelevant. There are all kinds of exclusive "clubs" around the world, so what.  The membership changes whether anyone likes it or not.

If you don't like the fraud, don't participate.  At the end of the day, this is the only way things change.  Start bartering and exchanging gold and silver if you like.  Many doing it already.

In regard to sustaining the system as it is now, impossible.  All one can do is hedge accordingly as this will not be a soft landing.

Thisson's picture

You are such a retard.  The state is controlled by bankers.  Yes, some bankers are Jews, but that doesn't make it a Zionist conspiracy.  Peddle your bullshit elsewhere.