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European Central Bank Hikes Capital From €5.76 To €10.76 Billion, Cuts Its 331x Leverage In Half

Tyler Durden's picture




 

As we speculated earlier in the week, the ECB just confirmed it is doubling its reserve capital from a token €5.8 billion to €10.8 billion. The bank cited increased volatility in FX rates, interest rates, gold prices and higher credit risks as the cause for the increase. Of course, even with this hike, the capitalization of the European central bank is still woefully insufficient. As we noted previously: "the ECB has €5.8 billion of capital [now €10.8 billion] on €1.924 trillion of assets: roughly 331x leverage. As a reminder the Fed has $57 billion capital on $2,385 billion in assets, or a 42x leverage ratio. On the other hand, the ECB only holds €72 billion in directly purchased bonds as part of its "assets", whereas the bulk of the Fed's assets are rate-sensitive instruments: roughly $2.1 trillion in "securities held outright."" In other words, the only global hedge fund that has a greater leverage than the Fed, has just cut its gross leverage from a stunning 331 to only 178x.

From Dow Jones:

The European Central Bank Thursday said it decided to increase its subscribed capital by EUR5 billion to EUR10.76 billion, because of increased volatility in foreign- exchange rates, interest rates, gold prices and higher credit risks.

"From a longer-term perspective, the increase in capital--the first general one in twelve years--is also motivated by the need to provide an adequate capital base in a financial system that has grown considerably," the ECB said in a press release.

The capital hike had been expected. It will take effect Dec. 29.

Whether this means that the Fed will follow suit as well, following well over $15 billion in rates-related P&L losses in just the past week on surging intereat rates, is as of now unclear.

 

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Thu, 12/16/2010 - 10:18 | 811242 RobotTrader
RobotTrader's picture

They must have dumped some gold this morning to raise the capital.  Its the only reason I can think of why gold is getting waterfalled today.

Thu, 12/16/2010 - 10:20 | 811245 doomandbloom
doomandbloom's picture

wasnt there a H&S on Gold...?

Thu, 12/16/2010 - 10:23 | 811253 SheepDog-One
SheepDog-One's picture

Sounds great to me, planned to pick up more silver rounds this morning, looks like I get free ounces! Thanks, Europes Copy of Bernank.

Thu, 12/16/2010 - 10:29 | 811265 eigenvalue
eigenvalue's picture

They dumped gold in exchange for what? The Euro? That means the ECB will use its own IOUs as a form of "capital"? Or the USD? That means the ECB will use the US arsewipe as its new capital? If they want to add capital, why don't they give gold directly to the ECB?

Thu, 12/16/2010 - 11:22 | 811408 Spitzer
Spitzer's picture

The ECB is not selling gold, only Robo is dumb enough to pay bad debts with good money.

Remeber when the IMF sold gold ?

did the price go up or down ?

Thu, 12/16/2010 - 11:19 | 811398 Spitzer
Spitzer's picture

haha

YOU DON'T

HAVE A

FUCKING

CLUE

Thu, 12/16/2010 - 10:19 | 811243 doomandbloom
doomandbloom's picture

Santa has bought 'bailouts' for everyone this christmas....ho ho ho!

Thu, 12/16/2010 - 10:20 | 811247 eigenvalue
eigenvalue's picture

In what form will the capital be beefed up? Gold, bonds, stocks or the Euro issued by the ECB itself?

Thu, 12/16/2010 - 10:21 | 811249 Cdad
Cdad's picture

Oh man...this is not good...this is nooooot good.  The Euro is already looking like a bimbo hanging over the railing hacking out too many mojitos...and now this?

Seriously, almost all of the criminal syndicate known as Wall Street has built a fabulous rally in the Roach Motel [SPY] on top of sand castles like our depreciating dollar.  Now if this story is true, and, well I have no reason to believe Tyler is a liar, then this is going to mean more Euro hacking.  I'll man up and hold her hair back, because gentlemen do things like that, but I'm telling you now...this is NOT GOOD.

On the hourly...she is already extended [both hands on the rail] and she is not looking...what is the word....ummmm....healthy.

Thu, 12/16/2010 - 10:25 | 811257 SheepDog-One
SheepDog-One's picture

SPY for the sheeple to see green numbers for 'all is well' just a giant castle built on sand.

Thu, 12/16/2010 - 10:29 | 811266 Cdad
Cdad's picture

It is certainly maddening, Dog.  It is.  But I am watching the Euro right now, and she's got the whole...what is the word for it...gaggy thing starting to happen.

Tell you what, I'll hold her hair back and you watch the back door at the Roach Motel...and if they both do their thing, lets go all Whack-a-Mole on BP or $9 burritos or stocks priced for dot com.

That should do it.  That should be right. 

Thu, 12/16/2010 - 10:40 | 811291 SheepDog-One
SheepDog-One's picture

$9 burritos filled with RICE! Its what makes an economy, you know...

Thu, 12/16/2010 - 10:49 | 811320 Cdad
Cdad's picture

Well...now that you mention it....

Ever eat one of those $9 burritos and then, missing your alarm, wake up just a little late and finding that Tyler is releasing like one massive story after another so fast that you cannot get to your, eh hem, morning constitutional?  I mean, talk about being jammed up.

Anyway, one could make the case that this has an important economic benefit as surely those $9 burritos stimulate the shares of a company called Novartis which, I think, makes Ex lax. 

But on the flip side, that probably makes the $9 burrito cost maybe even closer to $10 by time, eh hem, the whole experience is over.

So who knows...is it stimulative?  Suddenly I'm not sure ;)

Thu, 12/16/2010 - 10:20 | 811251 cetarro
cetarro's picture

anyone know the source of the capital?

Thu, 12/16/2010 - 10:26 | 811259 Spalding_Smailes
Spalding_Smailes's picture

Ben.

Thu, 12/16/2010 - 11:28 | 811428 Spitzer
Spitzer's picture

yep

hang the Fed/dollar with its own rope.

Thu, 12/16/2010 - 10:47 | 811311 M.B. Drapier
M.B. Drapier's picture

From the Euro countries' National Central Banks. Bear in mind, though, that the European System of Central Banks is apparently a huge hairball of claims, so the capital of the ECB proper is not all that important on its own.

Thu, 12/16/2010 - 10:42 | 811254 M.B. Drapier
M.B. Drapier's picture

the ECB has €5.8 billion of capital [now €10.8 billion] on €1.924 trillion of assets: roughly 331x leverage.

But how do you come to this conclusion? Isn't this comparing the ECB's assets to the whole Eurosystem's liabilities? And apparently the ECB proper is about the last part of the Eurosystem in line when it comes to shouldering the Eurosystem's losses.

Thu, 12/16/2010 - 11:24 | 811413 Spitzer
Spitzer's picture

I wonder if they included their 10,000 tons of gold marked to market, on the asset sid eof their balance sheet.

Thu, 12/16/2010 - 13:37 | 811793 M.B. Drapier
M.B. Drapier's picture

Isn't this comparing the ECB's assets to the whole Eurosystem's liabilities?

D'oh, other way round of course: the ECB's capital to the whole Eurosystem's assets.

Thu, 12/16/2010 - 10:28 | 811261 Caviar Emptor
Caviar Emptor's picture

At those attractive new multiples the ECB should be coming to market with an equity offering

Thu, 12/16/2010 - 10:40 | 811297 SheepDog-One
SheepDog-One's picture

Repackage and re-sell!!

Thu, 12/16/2010 - 10:53 | 811329 yabs
yabs's picture

I wasn't aware banks had any capital at all

I thought they just conjured it up out of thin air and leveraged that very air to infinity

Thu, 12/16/2010 - 11:06 | 811361 macholatte
macholatte's picture

 ...it is doubling its reserve capital from a token €5.8 billion to €10.8 billion.

Seems like a small amount in the big scheme, you know. Maybe the important thing is that they didn't plan on needing to do this so it caught them by surprise. More of a declaration of a symptom while ignoring the disease. A band-aid on a cut or a hemorrhage? Do they need a tourniquet? Is there a doctor in the house? Does Oprah know about this?

 

 

Thu, 12/16/2010 - 11:16 | 811385 M.B. Drapier
M.B. Drapier's picture

My uninformed guess is that this request for €5bn is basically just kite-flying: testing the waters to try to find out what the political reaction would be to a serious recap request after the ECB (or other Eurosystem CBs) had to book real losses. That said, the €5bn figure is showing up in a couple of places...

Thu, 12/16/2010 - 13:26 | 811665 THE DORK OF CORK
THE DORK OF CORK's picture

Informative and dendritic set of posts M.B.

So are you inferring that the 5 Billion recapitalisation is a direct consequence of losses in the 70 + Billion bond purchase programme.

Just as a side note - check the M0 there has been substantial increases in the amount of physical cash since October rising from 790 billion to 824 billion with a rise of more then 10 billion in the week ending December 3.

Eric C. and the boys may have had some effect.

 

Thu, 12/16/2010 - 11:11 | 811372 Cdad
Cdad's picture

 

EUR/USD

Ooops...there she goes....she is getting all gaggy now.  She tried to be brave and hold it in...which we all know is just not worth it.

I'll hold her hair, because gentlemen do that [even though it is really gross...and she should not have had so many mojitos] but I think all those Euros are about to come up.

This, of course, will make the US greenback look smokin' hot...which should make for good Whack-a-Mole fun on BP, anyway.  Damn them for making all my shrimp petroshrimp!

Thu, 12/16/2010 - 12:19 | 811580 LeBalance
LeBalance's picture

178 times levered huh?

That means if the ECB were to suffer a loss in portfolio of 0.56% it would wipe out their capital TO BE!

Not now (of course), they would only need an impairment of 0.30% to wipe out their reserve.

And does anyone think that doesn't happen every single day?

Yup....nothing up my sleeve...nothing behind my back....

Because I am a bankster illusionist and I brought nothing to the game except my wits.

Thu, 12/16/2010 - 13:31 | 811734 THE DORK OF CORK
THE DORK OF CORK's picture

If the majority of the worlds Gold was located in Europe both private and public - the ECB could revalue gold upwards dramatically in Euros via a Gold standard arrangement and not create a Hyperinflation in the eurozone.

If Gold was accepted as the new/ old reserve currency then at least temporally Europeans would have a majority claim on the worlds resources !

In such a scenario it would not matter in the great scheme of things if the M1 gold price was 13500 or the M2 was something larger - all those Euros backed by a shitload of Gold would have the majority share of the planet.

Holy Fucking Shit.

Trichet ,forgive me I know not what I do.

I shall walk into the valley of fiat , I shall fear no Bernanke

Master master..........

Thu, 12/16/2010 - 13:48 | 811814 Spitzer
Spitzer's picture

Notice how the Euro zone has a zero percent tax on gold ? I know where I will go to lend out my gold.

Thu, 12/16/2010 - 19:57 | 812853 Old Europe Avan...
Old Europe Avant-Garde's picture

"If" - but in reality the German gold is "stored" in the US. What do you think the chances are for Germany to get it back? Seems like the only one capable of pulling the stunt you mentioned is Ben.

Thu, 12/16/2010 - 14:28 | 811894 THE DORK OF CORK
THE DORK OF CORK's picture

yeah silver buying is the only monetory act of rebellion now as the ECB and European treasuries have no silver on their balance sheet.

In fact if the FOFOA ECB hypothesis somehow ( in a classical FOFOA way without a standard or maybe with a standard) arrives silver will only have a Industrial value.

Unless another country (America ?) opts for a silver standard given the relatively high production rates in Mexico , Canada and the US.

Silver North American monetory union.......... its a possibility - who knows whats lies ahead really.

Indeed over the long term America can remain on its traditional inflationary path with a silver standard.

If you accept the Americans have sold most of their Gold and in a freegold or gold standard arrangement they will have lost too much wealth relative to their standing - from a game theory viewpoint they would have to counter with silver in their own poltical juristiction......... just a thought.

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