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Visualizing Why The Future Of Europe's Financial System Hangs By A Thread
This highly informative (and very disturbing) graphic prepared originally in 2009 by the Guardian, makes it all too clear just why Europe is so concerned about its banking sector, and if it isn't, why it most certainly should be. While the top 5 banks in the US have roughly $7 trillion in assets (all of which are largely undercapitalized, as the little black circles show a bank's market cap, thus demonstrating the gaping hole between assets and equity, and yes, these are dated as they indicate the mkt caps as of early 2009, but that is largely irrelevant for this exercise), just the top five banks in France alone have nearly $1 trillion more in assets than all of the US banks (and are even more undercapitalized). Add to this the UK, Germany, Spain, Italy, Belgium, and the Netherlands, all of which are intricately interconnected with one bank's assets representing another bank's liabilities, in the world's biggest circle jerk, and you can see why quite literally the fate of the world depends on Europe containing the fallout from the ongoing financial crisis. Imagine for a second that these tens, if not hundreds, of trillions in assets in European banking assets are marked to market, even as the liabilities are completely fixed, thus crushing trillions in equity value, and you can see just how precarious the financial stability of the entire world is. One little falling domino forcing a MTM scramble across the banking sector will end Europe's financial system. The only amusing consequence of this doomsday hypothesis is visualizing the powerless and decentralized consortium of the ECB, BOE and SNB attempting to stop an avalanche of a hundred trillion in busted bank assets. One can see why Jean Claude Trichet is the world's most nervous human being.
PS - for clarification, the underlying market cap data is dated, but the held assets have not changed much since the chart's creation.
above chart in pdf format
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World's largest circle jerk?
Magnificent TD. Knees of the bees and a jolly spoiled rotten good time.
So much is tied to an industry that actually produces nothing other than debt. I see stuff like this an go out and buy more canned food.
Whoa !
And those bankers are still paying themselves in millions
These people are really saints, man, to accept pennies as pay!
BTW can you please tell me who started recognising debts as assets for new debts?
"can you please tell me who started recognising debts as assets for new debts"
The first...GoldSmiths, hundreds of years ago.
In modern times...the first Bank of England.
Here is your hyperdeflation. And combined with the crazed FIAT printing, then it is this plus hyperinflation. Let the great battle of hyperdeflation vs. hyperinflation commence!!!
http://www.youtube.com/watch?v=9PR_rzF8ofw it's been too long.... I HAD to!
Off topic. I am live blogging, er...live grogging Wall Street the movie.
Bud Fox: "Why do you need to wreck this company?"
Gordon Gekko: "Because it's wreckable."
--------------------------------------
That chart of the world's banks...
Billions and billions of death stars - Carl Saga
This chart seems to say that RBS is the worlds biggest problem bank and that UK and France are the biggest naked fish swimming in the ocean.
Sir V-Naked skinnydippers (a la Buffett) - Ned
I don't really understand the relationship between Market Value and Bank Assets. How can we infer under capitalization based on the Market Value of the company?
The "Market Value now" seems incorrect. It states Citigroup is 21.4 billion which would equate less than 1$ per share so clearly the data seems wrong. Bank of America is stated as 51 billion...Can someone clarify this for me?
Even the "Bank Assets" seem to be wrong based on most recent quarterly filings...
Inaccurate Stock Market Values and inaccurate Bank Assets. I call BS on this article
Citigroup's market cap is $110 billion, not the $21 billion in the graphic. No doubt the data for the others is similarly understated 5X. This article is useless.
The chart source data is from 2009. The market caps are dated (although how much of a buffer you get by adding $80 billion when your overmarked assets are $2.2 trillion, on $2.1 trillion of liabilities, is debatable...that's what fuged Tier 1 capital ratios are for). The point here is not the market cap underfunding, but the relative size of European banking assets to 1) American and 2) Global. Assets have not changed materially since this graphic was created.
Yes, thanks. It's from 2009.
The buffer difference is indeed debatable, 100X leverage then vs. 22X now.
Is that correct? Have the Eurpoean banks delevered that much?
I saw a graph the other day that showed the leverage ratios for the US vs. European banks over time. After 2008 the US leverage ratio dropped substantially, while the European leverage ratio remained the same. The article was making the case for another round of deleveraging coming out of the Europen banks.
I will continue to look for the article because I dislike posting such claims without references.
Wonder how much of those loan portfolios (assets) are in the level-3 category. If the banks are doing so great then they should mark to market. Just do it.. let's find out where the dead bodies are at. You can get another job later if your bank blows up.
Tyler Durden, you really need to start using PNG format for clean graphics like this; smaller file size and "lossless" (no artifacts like with JPEG). PDF format converts the graphics to JPEG so doesn't help matters.
+1.
PNG is "the right tool for the job." And for those who aren't graphics phreaks and just want to click on an image, PNG opens right up in every standard viewer. For those of us who have gotten past 40 and suddenly lost the ability to focus in on little type unless it's 10 feet away, a PNG file gives us very important clarity at high zoom rates.
Indeed, it's hard for a newbie to figure out what might be going on in some of these charts that get posted to ZH, because we haven't seen them before, and they're blurry.
Actually, I just checked the PDF version and it's an absolutely clean graphic (even if you zoom in) meaning it's an original POSTSCRIPT vector graphic, not just a converted image. Also means you could print it, at any size, and it would look great. This is far better than PNG, so good job Tyler.
But in general, for the browser image you should use PNG if it's a clean graphic. I've brought up this topic because I've seen Zero Hedge use JPEG's repeatedly when PNG's would be better suited.
"Imagine for a second that these tens, if not hundreds, of trillions in assets in European banking assets are marked to market,"
BWEEEEEEEEEP! CLEAR!
Ka-THUD!
Again!
BWEEEEEEEEEP! CLEAR!
Ka-THUD!
That'll be enough thought experiments for you for the weekend....
U R 2 Funi
Great call on the market cap - either this chart is wrong or we are missing something.
Hmm... Spanish banks look reasonably well off? Riddle me that. Do Spanish HFT take siestas? If not, that must be a great feeling waking up after a nap!
Swiss banks should fair reasonably well in a MTM burst. I hear theres gold in dem der mountains.
Nobody wants that mark to spotted dickcheese crap the wankers are selling. The BP spill alone should be -30 bn off all thier 'books', tho I'm sure the team at LBMA has them covered after that horseshit on Thurs.
What's an easy and practical way to short RBOS? Or European banks in general...?
/es[u0]
Meanwhile, the ever-increasing thirst for U.S. Treasuries continues unabated. As these European banks implode, and stocks continue to crash, and Bernanke sits on his hands, these AAA-rated, gilt-edge securities continue to fly up into Outer Space:
Meanwhile, "Tricky" Trichet singlehandedly caused the world's greatest currency crash of any G-20 country by muttering the words "brutal" and "unwelcome" when the Euro was surging last year.
And, on top of that, he blew up millions of Forex Gridbot players, Forex Megadroid computers, and bankrupted most of those playing in various bucket shops.
And, on top of that, the resultant destruction of these FX players triggered a global margin call that promptly resumed "The Great Disintegration" in risk assets and economic activity.
And he could care less, as he is too busy fondling his young mistresses.
Her eyes they shone like the diamonds
You'd think she was queen of the land
And her hair hung over her shoulder
Tied up with a black velvet band.
Irish Rovers - Black Velvet Band
http://www.youtube.com/watch?v=DfsgHyymG8E
What were we talking about?
I have JUST started shorting U.S Treasuries starting this week.
I have moderate long positions in the euro.
I will post a blog entry soon (probably much sooner than I expected) predicting pretty much all of this to a T (from back in May)
ssshhhhhh!! let me close on my refi first please.
Nice...buy debt of country that's in debt up to the eyeballs. http://www.itulip.com/images/1929longbond.gif
Robo taking us back to the early days of Vickies Secret. happy 4th.
When I grow up, I want to be a hedge fund manager.
me too...
+1
well, to be fair, i guess that could take anyone's mind off it, robot...
oh. my. god. Watching the half hour Paul Krugman interview by Charlie Rose.
These two quotes should sum it up.
Krugman: The worst thing countries can do right now is be austere"
Rose: So the 20 richest countries in the world are wrong, but Paul Krugman is right"
and THIS is the banking system we are supposed to emulate?? AHAHAHAHAHAHA!!
Where's Canada? Royal Bank > National Bank of Australia, etc. (now and then)
Perhaps the banks will decide which one of their own should be the sacrifical lamb and gang rape it for it's leftovers; or maybe the bondholders will beat them to the punch when they finally decide safe haven bank bonds is a multiword oxymoron.
Why not? It worked real well in the US on Lehman Bros (the gang rape/sacrificial lamb thing).
"There's no there there..." G. Stein
From New York Times. May 1st 2010
"Europe's Web of Debt"
http://www.nytimes.com/interactive/2010/05/02/weekinreview/02marsh.html
Easily a shareholder or major depositor requesting a transfer of some size could inadvertently cause a run at one of the less-state-run Euro banks, inadvertently starting the domino effect. That must be Tricky's biggest concern: that he does not get a banking subordinate to halt such a withdraw during the Cupo Mundial before he can stop it.
The picture says Nordea Bank Norge is owned by Nordea Group. Why are the assets of Nordea Bank Norge greather than the assets of Nordea Group itself? (I feel like I'm missing something obvious here)
Here is another good visualization:
http://4.bp.blogspot.com/_H2DePAZe2gA/SoyMv1D62SI/AAAAAAAAJmg/3nrlx6SONf...
Here's another - Jean-Claude 'nervous as the center on a Greek football team...'
Now that's funny! +1
What role would austerity play? Would that not accelerate the collapse of these assets?
Superficially, yes, but that's the point. Hate to keep repeating the obvious, but the point of the global neofeudalist movement is to collapse everything for the many, while increasing the concentrated wealth in the hands of the few.
Neofeudalism, now there's a concept. Reminds me of Hitler's blueprint for the new civilization. Happy technological peasants & Hi Teck lords & ladies. Watch a copy of Fritz Lang's 'Metropolis' it's all there. Hitler & the inner circle doted on the film. The Fehurer was even inclined to overlook the fact that Lang was Jewish. Lang was not fooled, he got out of Dodge.
OK everyone, put down your I phone or whatever the toy of the day is and read the two posts above several times.
Take another bite of the apple, and it will all go away.
In Europe funding goes mainly via banks, in US mainly via stock exchange. That´s why european banks have so much more assets on one hand, and US stock exchange is so much larger(than european ones), on the other hand. But european corporations sit on hundreds of billions of cash, so the squeeze is actually less serious than it seems at the first sight.
There are some local problems, of course, but the european banking sector is, generally speaking, in better shape than believed.
I mean, there´s often difference between perception and reality, and perception is very ugly right now, but that´s still just a perception.
The hottest chick in the world can be a real bitch.. so can perception.
Difference between a whore and a bitch? A whore will fuck anyone, a bitch will fuck anyone but you.
Best regards,
RF
Or:
A whore is a profession, a bitch is a character ;)
It will become a more common profession over time in imploding Europe. Taxing to death the productive to incentivize the non-productive to do nothing but vote correctly got you where you are, tumbling down the walls of the slippery abyss.
Sure, sure TBT(or not :D), just as you say. A good thing about profession, though, is that one can change it, unfortunately YOU cannot change your character, and will stay retarded forever ;p I´ve told you already you need to stop smoking that stuff and that could, perhaps, slow down the shrinkage of your little brain. But as I see, you´re not listening to me. Bad TBT, very bad ...;p
"slow down the shrinkage of your little brain."
Smaller is better, when we are talking about processing power. Intel has made a little scratch over time on this idea. Indeed, not TBT has been a pretty good trade lately, thus the "or" between TBT and "not TBT".
Oh, cool. So let me congratulate then to your little, but high-performance brain, which is getting just better and better ;)
ps: No offence intended. Now, or before. ;p
European accounting rules means banks must count all derivative exposures on balance sheet so they can't net them like in the US. Not to say that European banks are healthy (or indeed solvent for the most part) but this article is dated and misleading....
Not to pick on just your remark (a couple of other posters got hung up in the details as well) - but IMO the point of the article is that: (1) the European banking system is much larger as a proportion to their economies than the US's; and (2) the banking system is extremely inter-connected (the circle jerk part) where one collapse would likely start a domino effect. So, whether a system is levered 20x, 40x, or 60x isn't necessarily the issue. It's a order of magnitude question - the system is over-leveraged enough.
The fractional reserve system is on the verge of collapse. There isn't enough aggregate demand to support the current debts (which were created at higher levels of output and assumed certain growth). The system will work for as long as lenders are willing to extend-and-pretend, but as soon as a critical mass asks for repayment, then the musical chairs end. And the Prisoner's Dilemma suggests someone will ask for repayment sooner rather than later.
It is interesting to me that that no country has even dealing with the major risk, that is the amount of equity to total assets. I know there are stress tests, but what other industry would be considered "healthy" at 8% equity?
To not repeat this whole fiasco, either leverage has to be reduced, or the amount of risk that can be undertaken must be reduced.
Bonkers. Cheers , dont think i will go out tonight either.
Nice article. This site has definately become the financial insight site of day for me. There's news, there's information, and there's insight.
Great work.
(Disclaimer: I'm not a trader, just a peasant subject).
Uh oh... Speghettios....
Europe has bigger problems on its plate
http://www.youtube.com/watch?v=gx6UuGhLY5Q&playnext_from=TL&videos=O4h_2xCB8io
Project Mayhem at its finest TD - this chart is dated, as Mkt caps have exploded higher for most of these banks and they have expanded their teir 1 captial, according to king banker J to the D the big US banks are OVERcapitalized!
Beside bankers hate raising their capital as they properly view cash as a waisting asset, and as long as assets are paying, regardless if the asset is current or not, the accountants will marke it to mth which is probably 50-60% higher than market!
Rock on ZH
Updated DOW chart:
http://stockmarket618.wordpress.com
http://www.zerohedge.com/forum/latest-market-outlook-1
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