Moody's Actions Add Pressure To The Inevitable In France?

Reggie Middleton's picture

Hopefully all remember my proclamamtions on the FIRE sector and France suffereing from Italian exposure. I also warned on Italy itself, two year ago (subscribers reference Italy public finances projection). Thus, in today's news...

Moody's downgrades three major Italian insurers:

(Reuters) - Moody's lowered the credit rating of three major Italian insurers on Tuesday, piling more pressure on the euro zone's third largest economy after a string of downgrades on Monday and a sovereign downgrade last week.

Italy's largest domestic insurer Generali Assicurazioni and its subsidiaries were lowered to Baa1, while Unipol Assicurazioni, and Allianz Spa had ratings cut by two notches each.

"The downgrade of Generali reflects the insurer's direct exposure to Italian sovereign risk in terms of both investment portfolio and business profile," Moody's said in a statement.

By the end of 2011, Italian government bonds represented 19 percent or 46 billion euros ($56.18 billion) of Generali's total fixed-income portfolio, or 253 percent of shareholders' equity, according to the statement.

Government bonds constituted 47 percent of the fixed income portfolio of Unipol Assicurazioni with 222 percent of shareholders' equity.

All the institutions mentioned in the statement were given negative outlooks.

Included in this group were the insurers that I cautioned on in 2010 (subscribers reference Sovereign Debt Exposure of European Insurers and Reinsurers (439.61 kB 2010-05-19 01:56:52)

My warning on the Italian banks have come to pass (subscribers reference Italian Banking Macro-Fundamental Discussion Note) as Moody's slashes ratings of 13 Italian banks: The move follows a cut in the Italian government's long-term issuer rating last week. Italian banks had previously been downgraded in mid-May, as part of an international bank rating review. Ratings agencies rarely rate banks higher than the country in which they are headquartered, as they assume that if the sovereign goes, so will the bank. Therefore, the downgrades aren't exactly surprising, but could increase pressure on the already troubled lenders.

As a result Italian yields went up a few days ago - Italian Yields Forced Higher on Rating's Cut Ahead of Debt Sale, and went even higher today as Bund yeilds were actually issued with negative yields pushing that spread/gap ever wider... Bunds rise as Germany sells debt at negative yields

Italian 10-year yields were four basis points up at 6.07 percent, with two-year debt underperforming, yielding 8 bps more on the day at 3.96

Mish (Mike Shedlock) adds... Italy GDP expected to contract by 2%

So, when are the alarms going to be sounded by anybody other then BoomBustBlog for France??? I have made this quite clear in the past, namely in Watch The Pandemic Bank Flu Spread From Italy To France To ... where I simply quoted the arithmetical obvious, then in French Banks Can Set Off Contagion That Will ... where I basically did the same.  Subscribers can reference French Bank Observations & Focus on...(519.21 kB 2012-06-28 08:36:37).  Part and parcel to this common sense update is recognition of the fact that Italy will bust French banks, causing France to do the socialist bailout thingy. See this chart from the report...

 French bank Italian exposure 

French bank Italian Exposure: As Italy pops with outrageous funding yields (just like Greece), France will be forced to bailout its banks once again, leaving the socialist country facing the dilemma of potentially having to ask for a bailout itself. As you may know from my previous writings, the French banking system is bigger than France itself so a true bailout cannot practically come from within.

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TahoeBilly2012's picture

Yea, but even if they could get a huge bank bailout, will it grow the economy? So far no good, not here, not there, not anywhere. Looks like a debt julbilee is the only thing that might work and that would break the banks. No this pig is stuck, isn't it.

disabledvet's picture

Nationalization first. France is probably the only European country that can do that actually. Of course "recapitalizing the country then becomes a problem." got gold? Let me guess..."no. But we do have IMF!"

Bahamas's picture

la culotte rouge

blueridgeviews's picture

Didn't these banks pay Moody's enough for a good rating?

falak pema's picture

Reggie in a previous post I asked you this question : 2606264

You never replied. Your current post should address this issue whereby the official version in France is that its banks now have  Basel III level of first tier capital to 10%

Les banques françaises ont atteint le niveau de capitaux requis

I know this does not reply to financial tsunami risks if Italy tanks. But there again the official ECB meme is that Italian Banking  will never be allowed to tank. A bit like the FED meme saying that since the 1930s in USA, the FED has as official policy to never allow TBTF banks to tank. Given the contagion risk and potential derivative pile up unwind, if what you say could/will happen to french banking, it ALSO means lights out WS if that shit does actually hit the fans and puts both ECB and fED in the face of contagion banking collapse.

Print to infinity FED will also go belly up! 

So whats gone around since 2008 will come around again on both sides of the Pond! 

Its financial armageddon all around or its print to infinity all around; aka they won't allow Italian banks to tank. 

Now the official Oligarchy party line theory...We know since Glass Steagall revoke, the firewall between TBTF commercial banks and Investment banks/Casino trading ops having disappeared, its gonna make the FED old meme of 1930s virtually impossible to ensure, in case of across the pond contagion in banking world.

What Canada does to protect its banks the US can no more do! 

swani's picture

Let's not forget Italian gold. Hasn't that 2500 tons been pledged as collateral in case of default? Wasn't Three Card Monte in charge of seeing to that?



hardcleareye's picture

Minsk Moment coming soon...  Take Reggie's work along with the David Korowicz's "Trade Off" (at FESTA) and we are facing the high probability of a collapse of a complex networked society.... 

Now add M Pettis most recent article on China to the mix for a sobering assessment.


johnQpublic's picture

watching the tour de france, one of the finest sporting events on the planet, has made me truly despise the french.

they self sabotage their only true sporting event, so its no surprise to me that their entire banking system would sabotage itself.

Dien Bien Poo's picture

what a truly uninformed ignorant and bigoted thing to say. 

I would love to see your face when they take Lance Armstrongs 7 titles away from him later this summer for cheating. I wont be blaming the whole of America for one mans cheating though.

falak pema's picture

care to explain the "self sabotage meme?". As for despising national traits, I think there is an impressive pecking order list that looks like this  for the "libertarian free market addict" :

1° OBama's USA (unless you are a kleptocrat)

2° Cameron's UK (unless you are an Oligarch)

3° Merkel's Germany (unless you like bavarian beer fest and BMWs)

4° Hollande's France (unless you like state despostism and society's suffocation)

5° Japan's Fukushima shushi bar (unless you love bonsai ficus)

6° Putin's Russia (unless you like drunken blondes who sing in russian)

7° Communist/Kleptocratic China (unless you own Foxconn)

8° Zionist Israel (unless you are tribe member)

9° Theocratic Iran/Afghan (unless you like women as walking tents)

10° Any other nation who smells of different brand of living to Americanese. Just fill in the blank.

How's that for a "hater's" check list?

Most people who despise themselves love to despise others. But that's another story! 


sdmjake's picture

i like bavarian beer, BMW's, drunken russian blondes.....just sayin.

Jack Sheet's picture

Very interesting Reg but what are the consequences? Do I exchange all my U-code euro banknotes for X? Cancel my vacation in the Dordogne?

Sockeye's picture

"French banking system is bigger than France itself so a true bailout cannot practically come from within."
Too big to not fail.

falak pema's picture

Its true for the USA; with the derivatives sauce thrown in, all bubbling in shadow banking cauldron and not accounted for on official bank balance sheets!

You speak with forked tongue. You  must be a US cavalryman in this Apache movie! 

Panafrican Funktron Robot's picture

That quote was interesting, because the same could be said of US banks.  The top 50 banks reporting to the Fed by total asset value is $15.3 trillion.  The US nominal GDP is $15.1 trillion.  LOL.  The top 10 banks:  $11.3 trillion.  The Top 5:  $8.7 trillion.  

Rank Institution Name (RSSD ID) Total Assets 03/31/2012 1 JPMORGAN CHASE & CO. (1039502) $2,320,330,000 2 BANK OF AMERICA CORPORATION (1073757) $2,180,055,682 3 CITIGROUP INC. (1951350) $1,944,423,000 4 WELLS FARGO & COMPANY (1120754) $1,333,799,000 5 GOLDMAN SACHS GROUP, INC., THE (2380443) $951,217,000

The counterargument is "yeah, well, those assets on a MTM basis are probably more like a third of that", but I think the same could be said of the US GDP value in real terms.