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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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Thu, 05/26/2011 - 18:22 | 1314676 Yen Cross
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.

Thu, 05/26/2011 - 19:06 | 1314812 IdioTsincracY
IdioTsincracY's picture

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

Thu, 05/26/2011 - 18:27 | 1314682 Racer
Racer's picture

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

Thu, 05/26/2011 - 21:45 | 1315222 HuggaBushy
HuggaBushy's picture

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

Fri, 05/27/2011 - 10:14 | 1316382 Manthong
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

Thu, 05/26/2011 - 21:59 | 1315253 Anonymouse
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!

Thu, 05/26/2011 - 22:03 | 1315272 defender
defender's picture

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

Bank CEO:  "Think of the children..."

Thu, 05/26/2011 - 18:27 | 1314684 Rainman
Rainman's picture

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

Thu, 05/26/2011 - 18:34 | 1314724 Bay of Pigs
Bay of Pigs's picture

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


Thu, 05/26/2011 - 18:49 | 1314772 Yen Cross
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.




Thu, 05/26/2011 - 19:29 | 1314863 BanksterSlayer
BanksterSlayer's picture

The same as their Fed interest rate: 0.01%

Thu, 05/26/2011 - 19:08 | 1314827 XRAYD
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.

Thu, 05/26/2011 - 18:28 | 1314686 buzzsaw99
buzzsaw99's picture

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

Thu, 05/26/2011 - 18:25 | 1314689 the bankster
the bankster's picture

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

Thu, 05/26/2011 - 20:05 | 1314953 ATM
ATM's picture

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

Dominoes baby.........

Thu, 05/26/2011 - 18:30 | 1314690 nope-1004
nope-1004's picture

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

They are WCC's:  White Collar Criminals.


Thu, 05/26/2011 - 21:47 | 1315229 Ned Zeppelin
Ned Zeppelin's picture


Thu, 05/26/2011 - 18:26 | 1314692 RobotTrader
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.

Thu, 05/26/2011 - 18:56 | 1314785 gulf breeze
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

Thu, 05/26/2011 - 20:28 | 1315020 CrashisOptimistic
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.

Thu, 05/26/2011 - 23:57 | 1315510 topcallingtroll
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.

Thu, 05/26/2011 - 20:57 | 1315086 DeadFred
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?

Thu, 05/26/2011 - 21:47 | 1315227 Ned Zeppelin
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? 

Thu, 05/26/2011 - 18:29 | 1314702 Everybodys All ...
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.

Thu, 05/26/2011 - 21:28 | 1315170 downwiththebanks
downwiththebanks's picture

"The Banker-Gangsters must be repaid ... at any price.  Liquidate public health and public safety.  Fund the casinos!"

Thu, 05/26/2011 - 18:44 | 1314754 disabledvet
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.

Thu, 05/26/2011 - 18:48 | 1314759 Debtless
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.

Thu, 05/26/2011 - 18:56 | 1314790 disabledvet
disabledvet's picture

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

Thu, 05/26/2011 - 20:56 | 1315097 DeadFred
DeadFred's picture

Hotel maids?

Thu, 05/26/2011 - 18:57 | 1314784 aka_ces
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.

Thu, 05/26/2011 - 18:58 | 1314797 disabledvet
disabledvet's picture

is "onanistically" similar to "orgasmically?"

Thu, 05/26/2011 - 19:32 | 1314880 alex_g
alex_g's picture

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

Thu, 05/26/2011 - 21:30 | 1315179 downwiththebanks
downwiththebanks's picture

Is that the only way to short Greek debt?  

Fri, 05/27/2011 - 08:26 | 1315875 Urban Redneck
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.

Thu, 05/26/2011 - 19:00 | 1314803 baby_BLYTHE
baby_BLYTHE's picture

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

Thu, 05/26/2011 - 19:04 | 1314816 Yen Cross
Yen Cross's picture

  Hit the books and charts. (BLYTH)

    You will thank me next week.

Thu, 05/26/2011 - 19:13 | 1314835 baby_BLYTHE
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.

Thu, 05/26/2011 - 20:26 | 1314928 Yen Cross
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.,

Thu, 05/26/2011 - 20:48 | 1315069 Rynak
Rynak's picture

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

Thu, 05/26/2011 - 21:49 | 1315234 Yen Cross
Yen Cross's picture

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

Fri, 05/27/2011 - 01:20 | 1315615 terryfuckwit
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

Thu, 05/26/2011 - 19:05 | 1314813 XRAYD
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?

Thu, 05/26/2011 - 19:11 | 1314826 Yen Cross
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!

Thu, 05/26/2011 - 19:06 | 1314821 Cursive
Cursive's picture

complete faith in the government to bail you out.


Thu, 05/26/2011 - 19:09 | 1314822 Tic tock
Tic tock's picture

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

Thu, 05/26/2011 - 19:17 | 1314837 ReeferMac
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!

Thu, 05/26/2011 - 19:21 | 1314847 Lord Welligton
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.

Thu, 05/26/2011 - 20:53 | 1315083 CrashisOptimistic
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)?


Thu, 05/26/2011 - 21:50 | 1315238 Yen Cross
Yen Cross's picture

 Yes ! you are correct.

Thu, 05/26/2011 - 22:12 | 1315284 downwiththebanks
downwiththebanks's picture

Except one controls the other's money supply.

Fri, 05/27/2011 - 04:11 | 1315715 Bubbles the cat (not verified)
Bubbles the cat's picture

Corporatocracy. Kleptocracy. One way or another it will be played out on the streets......eventually.....

Thu, 05/26/2011 - 19:29 | 1314872 Lord Welligton
Lord Welligton's picture

"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."


Stop talking shite.

The only people buying Irish debt "at that time" were the ECB.

Everybody else was selling.

Grow up.

Fri, 05/27/2011 - 01:24 | 1315251 Yen Cross
Yen Cross's picture

 Lord Wellington, Ireland is on the icelandic slope. It has been for some time. I think Ireland has much more potential than Greece or Portugal though. Regional GDP, and general Sovereignty. When greece breaks down, it will be UGLY. All the Islands and Neighbors. Same With Italy. Italy is a much longer breakdown though. Spain could implode really fast if Portugal falls into default.

Thu, 05/26/2011 - 19:55 | 1314921 Racer
Racer's picture

The eLeech must survive no matter what

Thu, 05/26/2011 - 21:44 | 1315218 Ned Zeppelin
Ned Zeppelin's picture

Answer: the banks are so leveraged they are wiped out by a 10% or even less loss. Hence no sale was possible. 

Fri, 05/27/2011 - 00:43 | 1315546 Roger Knights
Roger Knights's picture

"Answer: the banks are so leveraged they are wiped out by a 10% or even less loss."

An additional reason their executives should be fired.

And the regulators / lawmakers who allowed such leverage, as long as it was in sainted euro-project "sovereigns."

And the central bankers who whispered to the banks, "We've got your back" (because they didn't want the sovereigns to go down, tarnishing their sainted euro project.)

They all ignored the numerous lessons from the events of 2008 and the warnings from the US about the systemic risk of too big to fail banks. They thought their socially constructed reality was the real reality, and that they were the masters of the universe. Nemesis heard them chuckling about how they were too big to fail, or the euro project "couldn't" be imperiled, cost and risk be damned.

Thu, 05/26/2011 - 21:57 | 1315255 Yen Cross
Yen Cross's picture

  My Mouth is shut.

Thu, 05/26/2011 - 23:51 | 1315500 topcallingtroll
topcallingtroll's picture

If you owe the bank a million that is your problem.

If you owe the bank a billion that is the taxpayers problem.

Fri, 05/27/2011 - 01:19 | 1315616 dcb
dcb's picture

of course the banks are to blame, but so are the regulators. if after lehman they didn't fix the system so this crap couldn't happen again. But why should they fix it when they have axpayers at the throat. now these same banks can trade down their assets, buying ll the way, until they get the bailout and the assets are worth money. Like the big boys did in the US.

I have tried to buy european debt from my broker, but can't get it. I have seen this play out before, haven't you?

Fri, 05/27/2011 - 08:08 | 1315849 waldocktrades
waldocktrades's picture

Just the thought of, "reprofiling" has spooked the gold and Dollar higher. This will probably continue for the next month or, two.


Fri, 05/27/2011 - 08:36 | 1315913 OldTrooper
OldTrooper's picture

For years we've watched the slow-motion destruction of this world.  I am going to take a much needed break for a few days.  Maybe then I'll be able to give a shit if the banks collapse.

Fri, 05/27/2011 - 08:59 | 1316032 oogs66
oogs66's picture

Finance ministers and IMF politicians who know nothing about credit want to lend to Greece.  Bill Gross, who knows about credit, says they are insolvent?  Who should we believe?  What will the world do?  We will do what the politicians say not what people who know anything say.

Fri, 05/27/2011 - 13:18 | 1317316 Chasecran
Chasecran's picture


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