Is Belgium's Dexia About To Be The First Greek Casualty?

Tyler Durden's picture

About a month ago Belgium's biggest bank, and as is now well known one of the most active borrowers at the Fed's discount window in the days following the Lehman crisis, issued €3.2 billion in FRNs with a two year maturity that had an odd feature: an ultra short term put feature (as the Bloomberg screen shows below, puttable June 26, 2011 at par) which can be exercised up to 33 days ahead of the put day (underwritten by Barclays, Citi and MS) or in other words, today. Well, as our source has told us, following recent downgrades of virtually all banks with Greek exposure (a topic further pursed by the below IFR article), the two largest investors in the bond: Blackrock, which owns the bulk or about €2.6 billion, and Barclays (among others) have exercised their put option. The speculation is that "either someone knows something or had a very rapid change of heart" and concludes that "this should make the whole funding thing relevant again" especially since banks continue to rely on the ECB exclusively for short-term liquidity needs. Also possible a jump in Fed Discount Window borrowings if the ECB is unable or unwilling to cross-collateralize even more Greek debt exposure. The advice: "start watching Libor/Euribor and the Forwards basis" for some near-term volatility. If this is confirmed, look for any/all other comparable short-term put deals to suddenly spring the investor option to pull their capital, and the domino avalanche to set off in earnest.

Issue DES page:

Dexia CDS:

And some more color (mostly red) from IFR:

Greece casts €100bn shadow over European banks

European banks remain saddled with almost €100bn of Greek government debt they can’t sell, hedge or ignore, after a number of recent deals to offload the exposure to reduce the impact of a possible default ended in failure, according to bankers involved.

The deals have been thwarted by a lack of willing buyers for the debt – even at record low prices – and that exposed lenders have been unable to buy protection because of the high costs, with top bankers advising their clients all they can now do is cross their fingers and hope for the best.

“The vast majority of these banks have just been unable to do anything,” said one European banker who has advised dozens of such banks. “Protection is too expensive, and markets for these bonds are illiquid, so many are riding out the problem. Right now, all they can do is shut their eyes and hope.”

Greek domestic banks are by far the biggest holders of the country’s bonds with some €50bn of exposure, according to a handful of estimates. But another €50bn is held at banks outside the country, with German banks alone exposed to around €19bn of the paper, while French banks hold another €15bn.

“For a lot of banks, their worst nightmare seems to be coming true,” said another investment banker who advises financial institutions on the continent. “We now know that the Greek smoke was indeed fire and a lot of people have now found themselves heavily exposed.”

“The big question is the exposure of some of our clients,” added the chief financial officer of one of Europe’s largest investment banks. “At some point something has to happen.”

As prices tumbled – the 10-year bond now trades at 51 cents on the euro – and fear grew that a default was inevitable, the window for selling was gone. “The state of liquidity in the Greek market would be too limited to support major asset reallocations involving Greek bonds at present,” said Philip Brown, head of public sector capital markets origination at Citigroup.

Perhaps remarkably, some banks even saw the drop in prices as a chance to increase their exposure to Greek bonds, so as to repo the instruments at full face value at the European Central Bank’s open market operations. “One chief financial officer told me I was a complete idiot not to be buying bonds and that was only back in April,” said one adviser, who asked not to be identified.

As for why CDS "protection" is now moot:

Even the credit default swap market doesn’t offer a way out. Indeed, net notional outstanding Greek hedges have decreased over recent months, falling to less than US$5.3bn now from more than US$9.4bn in late 2009, according to Depository Trust and Clearing Corporation data.

“CDS are beyond the level where you even bother to hedge,” said one analyst. “It’s easier in a way just to take the hit.” The cost of protecting €10m of five-year Greek bonds against default recently rose to €1.48m amid increased speculation that Athens would default.

The inability of banks to sell or hedge such exposure partly explains why the European Central Bank has been so keen to silence any talk of a restructuring or default. Central bankers will be keenly aware of the potential repercussions on the region’s banking system if such an event were to happen.

One potential tactic might be to delay any default or restructuring as long as possible. With every year that passes, exposure to such an event is decreased as bonds mature and are paid off in full. Of the estimated €270bn of Greek bonds currently in existence, about a third will mature by the end of 2013.

But while that might lessen the blow for the banks, politicians are likely to find such a solution less palatable than a full-blown restructuring. That’s because EU and IMF loans will have to fund those redemptions – essentially a government-sponsored bailing out of private bond holders. Insurance companies, pension funds and central banks hold a further €170bn of Greek paper.

Indeed, an added complication is the exposure of the ECB, which stepped into the market to buy Greek bonds last year. Under a default or restructuring situation, it would have to be recapitalised. Indeed, advisors say some clients see the ECB’s exposure as a reason such an event will be delayed.

“These banks know they are in good company – the ECB is in the same position and they too are unhedged,” said the first banker. “There is the presumption that it doesn’t really matter for the Landesbanken, they know they will get rescued. For them, this isn’t an immediately pressing issue.”

In other words, it just may be that the can kicking exercise is about to come to a very violent end.


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TruthInSunshine's picture

Off Topic, but Frontline always is one of my tells, and it was a dead ringer back in 2007/2008.

Bang Dae-Ho, bitchez.

Norway's Frontline, which operates the world's largest oil tanker fleet, announced an 81-percent decline in net income for the first quarter compared to last year. The company issued a grim outlook...

Link: The operator of the world's largest tanker fleet gives up on the global recovery

Also, the UK is looking FUGLY. No amount of lipstick can dress up this British Pig, and she can't afford her meat, so how is she ever going to get any pudding? -


And even more FUGLINESS.!/ftalpha/statuses/73306242344423424

FT Alphaville team UK GDP in Q1 2011 left unrevised at 0.5%. Also however - Q1 2011 household spending saw its biggest quarterly drop since Q2 2009...




Back ON Topic:

Whether Dexia is or isn't the 1st (of what will soon be a very long line) of casualties, the biggest casualty of Greece's debt problems will be the death of the Eurozone.

Just think; if Greece, pretty much by its lonesome, has so far doomed formerly solid incumbent senior politicians (and even long-standing ruling political parties) in Germany, France and in the other allegedly solvent member states of the EU, what will the casualties look like from having to deal with the larger, flaming wreckages that are Spain, Italy and Portugal (and then some, count on it)?

MarketTruth's picture

Greek BANK RUN bitches!!! (someone had to say it)

TruthInSunshine's picture

Based on the video of the riots induced by EU imposed austerity talk about a month ago, I would not want to be a Greek ATM Machine during an angry Greek bank run.

Or a teller.

And especially not a banker or politician.

3.7.77's picture

 The banker and politicians get what they deserve, poor tellers and atm's.

silberblick's picture

Sure enough. For some hilarity, click below to see a graphic illustration of bankster's dirty hierarchy of needs:

A Man without Qualities's picture

Dexia is such a big player in the derivatives market that the Fed and ECB will do everything in their power to defend it.  

Of course, I am sure the likes of JPM and Deutsche are happy to sell very expensive CDS on the name, but they will be fully aware of this fact...

Sudden Debt's picture

ALL Belgium cities have stakes in Dexia and are forbidden by the state to sell their stake.

So if Dexia goes down, and indeed it is a massive deri. player, it will take the cities with them. ALL of them.

Dexia is in suck a big mess, and still they want to give a 7% div. this year no strings attached. Just after the capital raise demande from the shareholders.

The bid on dexia shares is GONE. Once the panick kicks in, it will be at 0 very fast.

The government is planning to SAVE Dexia. BUT to do so, it will need 30% extra revenue (hello dear taxpayer who pays +50% already) to do so. And yet the government promises to get to that 30% WITHOUT tax increases. I wonder how many magicians they will get involved to do so...

DEXIA has hughe connections to BAC and CITI. SO HELLO AMERICA! WELCOME ON STAGE!

If Greece falls, Belgium falls. It's that simple.

If Belgium falls... Europe and America because indeed the derivative market will fall of the cliff. And it will either way when the US will do a QE3 and also when it doesn't do a QE3.






achmachat's picture

whoa! you just made this article even more sinister and catastrophic!

I am just happy that I got rid of ALL my Dexia shares when it was still at 4,6 €.

Sudden Debt's picture

It get's worse!!





1. if Dexia goes down = The cities have to BOOK the loss! = cities default.

2. The government itself has a big stake in Dexia to = Belgium DEBT will go to 175% in a matter of weeks!

3. ALL the big pension funds are Dexia related

4. Dexia is very interconnected in the French Banking world => Ouch!


This shit is just so BIG, nobody can even graps it!

Dexia is in a way bigger mess thant CITI and BAC combined!

Who will pay for it while nobody can really calculate how big the mess even is?!


 PS: Belgium is Uber BROKE!! No dineros! No more Euro's!

Sudden Debt's picture



The Belgium government has 600 billion in covered risks from Dexia.

That's just a number because Dexia would never be put at real risk... they said 2 years ago...



I'd better start looking to relocate...


camaro68ss's picture

Thanks Sudden Debt. your a great Contributor to the web site and I always look forward to what you have to say.

Thanks, - Camaro



achmachat's picture

relocate? you can always come here to little green Luxembourg ;-)

Motorhead's picture

I'll have a Diekirch, please!

achmachat's picture

i am right across the river from the brewery! ha!

Zero Debt's picture

They were rolling up to $37 billion in discount window debt year end 2008-12-31. Now you say they may need 600 billion?? Even Ben would not do that.

And we remember the Dexia rate-swap debacle with the US Municipalities..

Dexia is both too big to fail and too big to save.

Nnthnt1's picture

Dexia is both too big to fail and too big to save.

You forgot the magic printing presses.

2008 was just the beginning of the end. Give it a small decade and this money system is gone.

=> Physical gold in your vault, like a bowwss

(irony: I bought physical gold from Dexia 2 months ago)

Nnthnt1's picture

You see what happens, Larry, when you pay wannabe-bankers uberbonuses from the black hole of fractional reserve promises

Nnthnt1's picture

I advice you to stay away from financials as an 'investment', especially KBC and Dexia.

My father thinks he has the longest (still) running short on Dexia of the whole market. Since the beginning of 2007!


Sudden Debt's picture

Since the beginning of 2007? :)

I remember those day VERY well.

In 2007, you couldn't buy the 2011 puts. :)

Dexia only had the 2009 puts by than.

Your father is bullshitting you.


Nnthnt1's picture

I'll ask him again.

I'm not sure how puts are related but I thought the short-selling regulation came in in the panic of 2008?

Pretty sure.

It started out as a pair trade with fortis.


Tense INDIAN's picture

u have to admit ...these ELITE are so boggles the mind

SDRII's picture

While the eulogy continues water street leaning on the buy buy buy

achmachat's picture

so what would happen when one of these big banks fail?

I mean... let's say that I owe Dexia 1.000.000 EUR, I'd still owe those 1.000.000 EUR to whoever takes over, no?

Sudden Debt's picture

Easy there. You own 1000.000 euro in stocks, you'll pay all the required capital raises. Unless you sell but there is no Bid... even near zero... so guess what happens if no sucker buys your crap? = you are fucked.

That million, is a millstone around your neck.

And the big shareholders know this, and it's just these that aren't allowed to sell without concent of the government.


Sudden Debt's picture

Debt to Dexia = can be confiscated by the government.

at new terms....

and they are in short supply of money...



achmachat's picture

if this happens, let's hope that the government has bigger problems to look after than coming for my measly million euros.

Besides.. there IS NO government!

Sudden Debt's picture

Yes there is. There are 6 governments in Belgium.

Unless the new one get's the BHV problem solved, the financial reform, they can't form a new one AND THE OLD ONE STAYS IN POWER!

Did you really think they stopped messing things up? :)

And whatever they do, they're not responsible for it.

Is there anything better to fuck things up? Whatever you do, it's the other guys fault.





Overflow-admin's picture

So as you have already said fuck to your government for more than a year, wouldn't that be the moment to extend the word to the banks?

legal eagle's picture

The way I see it, the banks take money from other banks and invest it for their shareholders.  They are not really banks, servicing clients, they are investment funds for the bank shareholders.  The concept that our economy will be wiped out, or that real depositors will be wiped out, is farcical when you see the low lending, the government insurance for depositors (and believe me, folks with money have spread it around to take advantage of the insurance).  These are not really banks anymore!

Urban Redneck's picture

Bankers issuing paper with "do over" clauses.  Instead of maturing and learning from 2008, they are regressing to utter childishness.

LawsofPhysics's picture

Yes, banks need to become just banks again.

Sudden Debt's picture

Can't. To many digital money flooting arround that "generates income".

Without it, our economy can't survive.

Banks are evil yes. But they are our opium.



3.7.77's picture

They will learn again soon..

Nnthnt1's picture

 "Without it, our economy can't survive."

Thats at least what the billions of dollars financial lobbying industry says when there's 're'-regulations e.g. Basel I, Basel II, Basel III.

standard lobbying reasoning: "for every additional % of capital requirements there is a% less growth",


Because our uber-knowledgeable-ministry-of-truth-economists said so.

I bet they will eat themselves by being too greedy the next coming years.


hugovanderbubble's picture

Credit Agricole = DEFAULT

hugovanderbubble's picture

Short French Banks ALL

richard in norway's picture

should i be buying the fucking dip

hugovanderbubble's picture

Morgan Stanley; JpMorgan and BAC ,

US FInancial ENtities with biggest exposure to European Sovereign Debt.


SELL and short them till 40% down.

Sudden Debt's picture

Shorting the banks will be forbidden again in the next 6 weeks!



Nnthnt1's picture

It's not when you are already short..

Like I said: My father is short Dexia since early 2007. Beat that, captain hindsight!

Sudden Debt's picture

Since the beginning of 2007? :)

I remember those day VERY well.

In 2007, you couldn't buy the 2011 puts. :)

Dexia only had the 2009 puts by than.

Your father is bullshitting you.

jeff montanye's picture

buying a put option and selling a stock short are not the same thing.

Dick Darlington's picture

Dexia will have to ask the gubbermint for help. Again. Oh wait, there is no gubbermint in Belgium, hasn't been for over a year now. Funny how practically all the european TBTF's have lately been pushing, among other similar crap, spread compression trades between Belgium and Germany. Traders want to clean their books and switch into german paper while "real money" ends up with the crap.

RobotTrader's picture

I'd be wary about shorting.

All the PIIGS banks and the XLF are off their lows.

HBC is my bellweather, I'm watching that one carefully.

After a stunning 2009 recovery with massive monetization/nationalization/POMOzation, I doubt TPTB are going to let anybody "big" fail again.

Cursive's picture


Dick Fold on line 1.

Quintus's picture

That sounds painful.  Unless one is some kind of penile contortionist.  :-)