Guest Post: If Greece Default Would Wreak Havoc On European Banks Then CEO’s Should Be Fired

Tyler Durden's picture

From Peter Tchir of TF Market Advisors

If Greece Default Would Wreak Havoc On European Banks Then CEO’s Should Be Fired

Every day there is at least one headline about how catastrophic a Greek default would be.  These headlines aren’t coming from the doom and gloom crowd, they are coming from senior government officials throughout Europe.  There is great concern that a Greek default would hurt European banks.  The potential domino effect to other countries scares these senior officials. If these fears are valid, then some senior bankers should be fired immediately because they have wasted the opportunity to reduce their exposures with reasonable losses. 

Banks have had ample opportunity to cut their exposure to Greece.  The original bailout and the announcement of EFSF gave these banks an incredible chance to get out of their Greek debt with manageable losses. 

Hellenic Republic 6.1% of Aug 2015 bond price history with bank CEO thought process.

There is about 175 billion Euro of Greek government debt that matures prior to 2017.  The bulk of bank bond holdings are likely to fall in this maturity range.  Let’s look at what happened to the Hellenic Republic 6.1% bond maturing on August 20th, 2015.  This bond was issued at just below par on January 26th, 2010.  It traded well for awhile, but as the problems in Greece mounted, it traded down to the low 70’s in early May.  After the May bailout, the bonds spiked back to above 90 where they remained for about a month.  Then they started to drift down, and were trading in the high 70’s in the late summer as the sovereign debt crisis spread.  With the announcement of EFSF, the bonds rallied and got as high as 90 in October at the peak of complacency.  They are currently trading just above 60.  How many banks kept their entire position throughout this wild ride?  They had a warning of how bad it could get in April and got a 23 point bounce from low to high.  They got another warning in the summer, followed by a 13 point bounce.  Banks had two opportunities to sell these bonds and lose less than 10% including interest earned.  Now banks would face an almost 40% loss.  It is similar for other bonds in this maturity range:  August 2013 bonds traded down to 70, back to 90, down to 80, back to 88 and are now at 67.  The 5.9% of 2017 are even more interesting.  They were issued on March 30, 2010 and closed just above 98.  In less than a month they were trading at 76.  Which banks played in that new issue?  And yes, play is a more accurate word than invested.  The problems were becoming apparent and that particular bond was a disaster for anyone who bought it.  But like the other Greek bonds, it bounced back to above 90 after the May bailout, and again to the mid 80’s in October after EFSF.  They now languish at 58.

There were two warnings that all was not good.  Two big sell-offs that must have scared banks.  These were followed by two massive relief rallies after government bailouts that gave the banks the time to get out of their positions with reasonable losses.  Without being a perfect trader and catching the top, it is easy to see that banks could have sold their exposure, partly in May and again in October at say a 15% loss.  If banks held 100 billion Euro of debt, that would have been a 15 billion loss to the banking system.  That same 100 billion now has a loss of about 40 billion euro! 

If banks didn’t massively reduce exposure when they had these windows of opportunity, and the EU is busy negotiating to save these same banks, someone needs to be fired.  It is mind boggling that banks were either so afraid of taking a reasonable loss or so greedy that they thought they could do better that they kept these exposures.  It had to have been clear to everyone at the banks how bad it could get, the only prudent, not even smart, just prudent, action was to cut exposures.  Even if you missed the May rally which was the best opportunity to get out, how could you sit through the summer fear and not sell heavily into the October rally?  Any explanation involves either stupidity, negligence, or complete faith in the government to bail you out.  Sadly it is likely the latter, and that bank CEO’s were so comfortable that the governments would take care of them that they did not feel the need to cut dramatically.  Or maybe the banks did cut their exposure and it is the EU and ECB who is lying to us, and the renegotiating with Greece to save themselves and not the banks.

What about the contagion effect?  Even if the banks had sold down their Greek debt, wouldn’t they have been stuck with Ireland?  NO!!  The Irish 10 year bond barely got below 95 in May, and quickly bounced back to above par.  It faded to 95 over the summer with contagion risk, but once again got to about par as EFSF was talked about.  It is currently trading at 68.  Shorter dated Irish bonds aren’t trading as low as in Greece, but on the other hand, there were many more opportunities to sell out of Irish risk without a loss.  So again, the banks chose to hold their positions.  If Europe is facing fears that banks will be wiped out due to losses on sovereign debt, the banks themselves are to blame.

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Yen Cross's picture

 Science Fiction. Will never happen! Greece would be slowly expatriated at the very least, over a large period of time. Which I think is currently happening.

IdioTsincracY's picture

We cannot let it happen ... Save our CEOs! ... protect the Oligarchy ... save the best our race has to offer!

Racer's picture

There are losses and there are losses, but they have taxpayers, pensioners and unborn children

HuggaBushy's picture

That is why we need a complete separation of state and economics.

Manthong's picture

Roger that.

It is beyond ridiculous. Case in point:

State College Area School District in Pennsylvania several years ago abandoned plans to build a new high school. This month, it received a notice that it owes $10 million to Royal Bank of Canada for skipping an interest payment on money it never borrowed for a school it didn't build

Anonymouse's picture

The very definition of moral hazard.  Why should they take any loss when they have a free backstop to prevent that.  RISK ON!

defender's picture

Stock holder:  "Look at all of these loses!  How are we going to cover this?!"

Bank CEO:  "Think of the children..."

Rainman's picture

Biggest mistake humans make is thinking the bankster class is really smart. Shoot, BAC actually believed Countrywide was a steal.  

Bay of Pigs's picture

I wonder what percentage of Countrywides loans were actually legitimate and not fraudulent? 


Yen Cross's picture

  Bay of Pigs. I have never been involved in the mortagage industry. I have had some special people in the private sector, do some research.

   The net results of the research are;  Banks are holding inventory.

                                                   ;  Mortgage lenders are trying to buy back inventory, to become solvent and resell the inventory.                             

                                                    ; Small banks are really pissed off, because of Barney Frank, Dodd's son @ Fanny. Credit Unions.

                                                     ; REIT's are region and commercial based with some JUNK real estate tracts in their portfolios. THAT is the TRUTH.




BanksterSlayer's picture

The same as their Fed interest rate: 0.01%

XRAYD's picture

In the old days, bankers had to be above average in looks and below in intelligence. Both these are no longer minimum requirements.

buzzsaw99's picture

All CEOs should be shot, but instead they will receive bonuses.

the bankster's picture

Good thing the banks passed their sovereign risk stress tests, right Peter?

ATM's picture

Amen to that. Just think what could happen if all those Greek bonds were marked down 60%!

Dominoes baby.........

nope-1004's picture

Banksters never were, and never will be, CEO fabric in the traditional sense.

They are WCC's:  White Collar Criminals.


RobotTrader's picture

A "Shock and Awe" rally out of the financial sector would not surprise me in the least.

Somehow, some way, a "deal" will be struck to save the PIIGS.  The CEO's are now conspiring with TPTB to engineer some "announcement" which will catch all the short sellers off guard.

gulf breeze's picture


You have been calling for a Financial rally for months.  One day you will be correct and one day you will finally have a winning week on your sports book.  Get back to  your room and eat your CMG

CrashisOptimistic's picture

Everyone wants it to happen.  Everyone wants to hold onto their lifestyle.

But more particularly now, versus more or less all other times, everyone is hyper vigilant to ensure that "it happens" at the expense of someone else.  This is why the Chinese rumor captured such fancy.

But the Chinese are among the vigilant.  And this vigilance is why there is no way out unless military force is brought into play.  Someone has to be forced to sacrifice for the lifestyle of others.

topcallingtroll's picture

Naah. No one has to be forced. Those who sacrifice will be the last ones standing when the music stops.

We should thank them.

DeadFred's picture

Days like today make me agree. The purpose of the market is to shear sheep and the sheep are short now.

As far as the CEO's go, why is this the only place you will hear about firing the CEOs?

Ned Zeppelin's picture

Why junk RT when he merely calls it as it is, whether we like it or not? Who do you think is winning this war on Truth, the good guys? 

Everybodys All American's picture

I couldn't disagree more. Ireland, Greece, Spain, Portugual, Belgium, and on and on. There is no escaping the contagion in Europe.

disabledvet's picture

we like this talk.  "the default has already occurred" of course--which means "the talk is about the past and what has already happened" (cue to pics of mass demonstrations--we really do need to go "all in on multimedia" here)--the question therefore is not "default" but "who defaults after Ireland and Portugal which have also already defaulted?"  "Belgium, Italy and Spain"??  "I sense Empire Incorporated" rockin' and rollin' here.

Debtless's picture

Regular people don't give two shits if all these insolvent banks go down. There or here.

It's THE SYSTEM worried about saving itself.

disabledvet's picture

EXACTLY!  "The banks are doing just fine" it's just "we're phucked."  Now "what's my Congressman/woman up to?"

aka_ces's picture

Perhaps these banks believe that they've hedged their exposure via various derivatives in shadow markets ?  

Not that such "hedges" wouldn't be closed-loop, either incestuously or onanistically.

disabledvet's picture

is "onanistically" similar to "orgasmically?"

alex_g's picture

8 bln notional CDS on Greek sovereign, 300 bln straight debt, you make the call...

downwiththebanks's picture

Is that the only way to short Greek debt?  

Urban Redneck's picture

There is about 175 billion Euro of Greek government debt that matures prior to 2017.

What is the daily volume on Greek debt?

At the end of the day someone has to be holding the $175 billion of debt and take a loss in the event of default.  Until then- it is a game of musical chairs, but the banks can only offload the debt to a willing a buyer who has the requisite billions. 

Is Peter Tchir suggesting that the $175 billion should have been off loaded to the public balance sheet of the ECB, or the IMF?  Someone must possess the toxic paper. This isn't like toxic waste from Fukushima that can just be buried or dumped in the sea.  Greek debt only and must exist in "Balance Shi/eet World" and cannot escape it.

baby_BLYTHE's picture

Where is everyone today? usually ZH has 2x-3x as many comments. Holiday weekend hasn't started yet either.

Yen Cross's picture

  Hit the books and charts. (BLYTH)

    You will thank me next week.

baby_BLYTHE's picture

Yeah, I went out and got Ron Paul's new book "Liberty Defined". Pretty good read so far, he definitely has a better chance in the race this go around.

Yen Cross's picture

  Thank you! That is a good read. I'm still cumfused when I try to figure out the political parties of Australia. There is not one unique party. They are all the same.,

Rynak's picture

Most parties in most countries are - they just hire different marketing departments.

Yen Cross's picture

 Do some good work. Don't hurt people. Have a (dip) with them.  Smiles.

terryfuckwit's picture

I despair because UK has no Ron Paul's and no balanced journalism anywhere. The zombie brainwashed here would relegate you to the tin foil hat brigade for mentioning anything you read on here

XRAYD's picture

Americans have been "firing" their presidents every 4 to 8 years for the last thirty five years now.


Not worked out so good, has it?

Yen Cross's picture

 An American President can serve 2 (4 year terms) Congress is on odd years @ House and Senate. It was designed to control majorities. Not worthless minorites!

Cursive's picture

complete faith in the government to bail you out.


Tic tock's picture

perhaps the safest place to hold a bad loss is in a bank, I mean, for everyone else it matters.

ReeferMac's picture

Thank you Peter!

You absolutely nailed the fundamental issue right on the proverbial head!

If you make a bad decision in business, you lose money. Enough of them, you go out of business. Period. There is no tooth-fairy w/ a giant bag of money to bail you out! You failed! You hang your head in shame, beg for a gig @ some third-rate brokerage house, and hope your family is not destitute!

Failure has ceased to exist in this Too Big To Fail world, and that in a nutshell, is the entirety of the problem!

Lord Welligton's picture

"If these fears are valid, then some senior bankers should be fired immediately because they have wasted the opportunity to reduce their exposures with reasonable losses"

If you want to be that stupid all your life then so be it.

Banks = State.

State = Banks.

It really is that simple.

No one gets fired.

CrashisOptimistic's picture

Why reduce exposure when you can blackmail your prime minister with terror of total national meltdown if he or she doesn't flow taxpayer money to the relevant bailout (which conduits to your bank)?