"As SOE restructuring progresses, it will also become more apparent that Chinese banks need to be rescued. We estimate that the total losses in the banking sector could reach CNY8 trillion, equivalent to more than 60% of commercial banks’ capital, 50% of fiscal revenues and 12% of GDP."
Today we learned that not only was China going through with its unprecedented debt-for-equity swap, but it has already equitized over $220 billion in non-performing loans. Note: these are not traditional, Chapter 11 prepacks where the debt is converted into equity and the debt holder gets the keys to the company. In this case, it is the Chinese government itself which indirectly via state-owned banks, has become the de facto owner of countless companies.
If it looks like a crash, smells like a crash, acts like a crash, is it a recovery? Here's the hard hitting evidence that you just won't find anywhere else. Just don't shoot the messenger! BoomBustBlog style research is back with a vengence.
Last April, China had an idea about how to boost the country’s dying credit impulse. One idea was to supercharge the country’s nascent ABS market which was barely producing $50 billion in supply per year. That effort failed in large part due to banks' unwillingness to offload their good assets in a time when NPLs are rising. So you can probably guess what Beijing's "solution" is.
S&P Downgrades Banks With Highest Energy Exposure; Expects "Sharp Increase" In Non-Performing AssetsSubmitted by Tyler Durden on 02/09/2016 18:35 -0400
Moments ago S&P continued its downgrade cycle, this time taking the axe to the regional banks with the highest energy exposure due to "expectations for higher loan losses." Specifically, its lowered its long-term issuer credit ratings on four U.S. regional banks by one notch: BOK Financial Corp., Comerica Inc., Cullen/Frost Bankers Inc., and Texas Capital Bancshares. The outlooks on these banks are negative.
It didn't take much to fizzle Friday's Japan NIRP-driven euphoria, when first ugly Chinese manufacturing (and service) PMI data reminded the world just what the bull in the China shop is leading to a 1.8% Shanghai drop on the first day of February. Then it was about oil once more when Goldman itself said not to expect any crude production cuts in the near future. Finally throw in some very cautious words by the sellside what Japan's act of NIRP desperation means, and it becomes clear why stocks on both sides of the pond are down, why crude is not far behind, and why gold continues to rise.
The Fed & ECB are spawning the next crisis....
Based on Bloomberg data, Doral Bank is the 3rd largest (by assets) bank in Puerto Rico...or rather was. After a 58% collapse in the share price today, news broke after the close:
*PUERTO RICO'S DORAL BANK PLACED UNDER FDIC RECEIVERSHIP, BANCO POPULAR AGREES TO BUY DORAL BANK OPERATIONS
It appears Non-Performing Loans were over 40%. Popular will take the deposits (and 8 of Doral's 26 branches) and the FDIC eats the bad debt (estimates to cost the Deposit Insurance Fund (DIF) will be $748.9 million).
"It is clear to us that speculative and Ponzi finance dominate China’s economy at this stage. The question is when and how the system’s current instability resolves itself. The Minsky Moment refers to the moment at which a credit boom driven by speculative and Ponzi borrowers begins to unwind. It is the point at which Ponzi and speculative borrowers are no longer able to roll over their debts or borrow additional capital to make interest payments.... We believe that China finds itself today at exactly this juncture."
- Contractors describe scant pre-launch testing of U.S. healthcare site (Reuters)
- Carney Says BOE Revamp Offers Wider Access to Cheaper Funds (BBG)
- Help wanted in Fukushima: Low pay, high risks and gangsters (Reuters)
- Merkel and Hollande to change intelligence ties with US (FT)
- Twitter IPO pegs valuation at modest $11 billion (Reuters)
- NSA monitored calls of 35 world leaders after US official handed over contacts (Guardian)
- Officials alert foreign services that Snowden has documents on their cooperation with U.S. (WaPo)
- Scottish Nationalists Lose Vote After Plant Threatened With Axe (BBG)
- Fernández contemplates a train wreck in Argentine elections (FT)
- Irish Government will consider ‘best options’ for bailout exit (Irish Times)
After showing Ireland's biggest banks failed to report borrowings/encumbrances, I give EVERYONE means to play credit analyst. Calculate Ireland needing another bailout right here (hint: this app probably shames your favorite ratings agency).
It begins here: Introduction of cold, hard evidence of bank shenanigans (with complete documentation) that A) should be prosecuted & B) cause enough concern to make you worry about your bank's integrity.
The Canadian Government Offers "Bail-In" Regime, Prepares For The Confiscation Of Bank Deposits To Bail Out BanksSubmitted by Reggie Middleton on 03/30/2013 11:12 -0400
It's not just Cyprus, and no - it's not just Canada either. I'm preparing a list of specific banks that I have 1st hand knowledge that would prevent me from keeping my money in them. Get "Cyprus'd"!!!
When all is said and done, what happened in Cyprus over the past two weeks, is nothing but the culmination of re-marking the "assets" in the country's financial system (which as noted previously, were a preponderance of worthless Greek bonds and countless other non-performing loans), long priced at assorted "myth" levels, to a long overdue reality. As a result of delaying resolving the mismatch between non-performing assets and liabilities for years, the resolution was one which saw some €16 billion of the total asset base impaired, which in turn necessitated the impairment of billions of deposits: the primary liability funding the Cypriot financial system. Furthermore, as a result of the "Freudian Slip" by the Eurogroup's new head earlier this week, we know that Cyprus will be the template for all future bank resolutions, which seek to avoid a government vote and proceed to restructuring the banking sector a la carte, by liquidating bad banks and impairing liabilities to the point where the balance sheet is once again viable (however briefly). The bottom line is that at its core, it is all simply a bad debt problem, and the more the bad debt, the greater the ultimate liability impairments become, including deposits. Which means that the real question in Europe is: how much impairment capacity is there in the various European nations before deposits have to be haircut? Thanks to Credit Suisse we now know the answer.