PIIGSlets in a Bank: Another European Banks-at-Risk Actionable Research Note

This is the skinny on those French and German banks that are at significant
risk to PIIGS drowning, or potentially even getting significantly wet. The sell
side banks have released reports on which bank is exposed to Greece, etc., but
we decided to take it a few steps farther in order to create a truly actionable
document that our subscribers can actually use to base concrete decisions upon.
As is customary, I am releasing snippets of the proprietary research for free to
the blogoshpere. This time around, I’ll feature a European bank that we feel is
thoroughly insolvent, yet trading at one of the highest premiums in all of
Europe! As excepted from the reports referenced below:

Deutsche Postbank

The bank reported its exposure to sovereign
debt of Greece, Italy, Ireland, Portugal and Spain at €1.3 billion, €4.7
billion, €350 million, €50 million and €1.2 billion.

Applying the loss rates under the base case,
the total estimated losses on sovereign debt holdings is €1.7 billion (60.1% of
tangible equity) on the total European sovereign debt exposure of nearly €24.9
billion (based on the reported sovereign debt exposure of December 2009). The
existing Texas ratio of the bank is 139%, and if we include the
losses on sovereign debt (unconventional, but illustrates solvency in a clearer
fashion), the Texas ratio* will be 177%. The bank is trading at
price to tangible book value of 1.83x. The stock is trading on
a high multiple largely owing to speculation of full takeover by Deutsche bank.
The float is 36% of shares outstanding as 39.5% is owned by Deutsche Post and
25% is owned by Deutsche Bank. See Deutsche Bank vs Postbank Review & Summary Analysis –
Pro & Institutional and Deutsche Bank vs Postbank Review & Summary Analysis –
Retail for a detailed overview and analysis of the unusual
Deutsche Postbank situation. 

*Texas ratio = (Non-performing and past due
loans + losses on sovereign debt)/ (Tangible equity + Provision for loan
losses)

 

We started this project from scratch with no pre-conceived notions and came
up with the usual suspect nations in regards to claims exposure to the PIIGS.
Wait! There are conditions to that finding though. Conditions that I haven’t
seen in the myriad array of sell side reports that we have perused. Subscribers
are urged to view Irish
Bank Strategy Note before we move on to understand
the limits of using simple foreign claims as a guage of potential risk events.
Our proprietary sovereign contagion models
(
Sovereign Contagion Model – Retail (961.43 kB 2010-05-04
12:32:46) and
Sovereign Contagion Model – Pro & Institutional) address the
shortcomings of this perspective in complete detail, and I will expand on those
shortcomings in a future post, hopefully later on today.

 Below is a screen shot of the summary of 29 page professional
version of the PIIGS exposed bank analysis.  

 Subscribers can download this document here:
Euro Bank
Soveregn Debt Exposure Final -Retail and Euro
Bank Soveregn Debt Exposure Final – Pro & Institutional

The complete Pan-European Sovereign Debt Crisis
analyiss (and its origins), to date are availabe free to the public: The Pan-European Sovereign Debt Crisis!

Comments

[anonnn]

...and one ring to rule them all.[Tolkien]

If you believe this is fantasy or some silly behavior model, explain the wide, almost intuitive understanding of Tolkien's writings.

From above, "Obviously nothing was solved by monetary infusion..." Of course something was/is being solved, it is just not recognized.

If one's observations do not make sense,[monetary infusions], or seem stupid, one needs to broaden his viewpoint to find out how they DO make sense...albeit to someone else,[E.g., Who/what benefits? and How?].

Any and every variety of bailout is certainly opportunity to control the supplicant nation's leadership...and it is desirable to conjoin several nations via establishing a central authority so that only the central persons need to be controlled. Brussellizing is an old strategem.

[Racer]

And Deutsche Postbank is up 1.32% today, seems no-one cares it is broke

[kaiserhoff]

Fine work.  Is there a sensible way to short this, as in puts on an honest to god exchange?

[Reggie Middleton]

Have no doubt about it, from an economic perspective the bank is insolvent, nearly two times over. This is not a trade for freshmen or beginners though (not insinuating that you are one), due to the fact that there are a lot of contingent factors that go into making a sensible decision. The reports linked above go through each one in explicit detail.

They also list other banks that probably give a better risk reward ratio in terms of a straight short.

[williambanzai7]

SLICIN THE PIIGS:

http://williambanzai7.blogspot.com/2010/05/sliced-piigs.html

[doolittlegeorge]

does this include their exposure to the USA as well?