BNP Bust Up: Yet Another Reason Why BNP Paribas Is Still Ripe For Implosion!

Here's the ugly truth that I, at least to date, have not seen adequately addressed in the media or the vast majority of sell side analysts reports. To wit, CNBC reports "ECB Makes $500 Million Loan, Renewing Bank Fears"

The European Central Bank says it loaned $500 million to a single bank for seven days, raising further fears that a major financial institution could be in trouble.

The bank said Wednesday on its website that it would make the loan to a single unidentified bidder from its swap line through which it obtains dollars from the U.S. Federal Reserve.

Europe's sovereign debt crisis has provoked fears about the health of the banking system because of the potential for losses from holdings of bonds issued by Greece and other troubled countries.

Some banks are unable to borrow normally from other banks because of fears they will not pay the money back, leaving them dependent on last resort credit from the ECB.

I'm about to walk you through EXACLTY why the ECB needed to make said emergency loan, and why many more such loans are on tap for the very near future. As those who have been reading my blog or subscribed to my research know, I have been quite bearish on French banks of late (see the list of links at end of post for the chronology). Having picked out the prime short candidate for this bearish thesis (based on a relatively high valuation, dire liquidity predicament, and less than forthcoming management, I announced to subscribers that we probably have a prime candidate for a European bank run AND a very profitable short play. That was back in July, when investors/media/sell side analysts attention was focused on Greece and starting to hover over Italy. Well, fast forward a quarter and upon my releasing tidbits of said research to the public... As per ZeroHedge yesterday morning: BNP Freefalling

There should be at least a few of you out there saying, "Damn, I wish I could have gotten in that." After all, rumors surrounded Soc Gen and Credit Agricole, but no one was really looking at the bank that had the most shortable share price. Hmmm! Well, now the shares are eithet banned from shorting (in Europe) or hard to borrow (in the US). The good part for bearish investors (and the problem for the banks) is that there is a limited risk of a short squeeze due to the lame brain decision to ban shorting in Europe! Thus, if you can find the shares (or options, or SSFs, or CDS, or...) go short until your heart's content, or until you hit what you feel fair valuation is, or until the bank implodes due to a bank run.

On that note, let's review my post last week, "BoomBust BNP Paribas?" (it is strongly recommended that you review this article if you haven't read it already) I started releasing snippets and tidbits of the proprietary research that led to the BNP short, namely  Bank Run Liquidity Candidate Forensic Opinion - A full forensic note for professional and institutional subscribers. It outlined some very telling reasons why BNP's share price appears to be spillunking, namely:

1. Management is lying being less than forthcoming with the valuation of toxic assets on its books.
2. The sheer amount of these assets on the books and the levereage employed to attain them are devastating
3. BNP has employed the proven self destructive financing methodology of borrow short, invest in depreciating assets long!
4. BNP management lying being less than forthcoming about reliance on said funding maturity mismatch, despite the fact it handily dispatched Bear Stearns and Lehman Brothers in less than a weekend!

Uh Oh!!!! Or as Robin use to say back in the day, "Holy non sequitor, Batman!"

Well, guess what? The problems delineated above are actually just the tip of the iceberg, and if you feel that they are  the gist of BNP's dilemma, you obviously don't subscribe to BoomBustBlog. Since the BNP research is dated and most of the easy profit has been extracted out of the BNP short trade already I'm systematically spilling the beans - to the chagrin of BNP management, I'm sure. If you want to end up sounding like Robin, the boy wonder above, simply read on...

Another BIG Reason Why BNP Paribas Is Still Ripe For Implosion!

As excerpted from our professional series  Bank Run Liquidity Candidate Forensic Opinion:

This is how that document started off. Even if we were to disregard BNP's most serious liquidity and ALM mismatch issues, we still need to address the topic above. Now, if you were to employ the free BNP bank run models that I made available in the post "The BoomBustBlog BNP Paribas "Run On The Bank" Model Available for Download"" (click the link to download your own copy of the bank run model, whether your a simple BoomBustBlog follower or a paid subscriber) you would know that the odds are that BNP's bond portfolio would probably take a much bigger hit than that conservatively quoted above.  Here I demonstrated what more realistic numbers would look like in said model...

To note page 9 of that very same document addresses how this train of thought can not only be accelerated, but taken much further...

So, how bad could this faux accounting thing be? You know, there were two American banks that abused this FAS 157 cum Topic 820 loophole as well. There names were Bear Stearns and Lehman Brothers. I warned my readers well ahead of time with them as well - well before anybody else apparently had a clue (Is this the Breaking of the Bear? and Is Lehman really a lemming in disguise?). Well, at least in the case of BNP, it's a potential tangible equity wipeout, or is it? On to page 10 of said subscription document...

Yo, watch those level 2s! Of course there is more to BNP besides overpriced, over leveraged sovereign debt, liquidity issues and ALM mismatch, and lying about stretching Topic 820 rules, but I think that's enough for right now. Is all of this already priced into the free falling stock? Are these the ingredients for a European bank run? I'll let you decide, but BoomBustBloggers Saw this coming midsummer when this stock was at $50. Those who wish to subscribe to my research and services should click here. Those who don't subscribe can still benefit from the chronology that led up to the BIG BNP short (at least those who have come across my research for the first time)...

Thursday, 28 July 2011  The Mechanics Behind Setting Up A Potential European Bank Run Trastde and European Bank Run Trading Supplement

I identify specific bank run candidates and offer illustrative trade setups to capture alpha from such an event. The options quoted were unfortunately unavailable to American investors, and enjoyed a literal explosion in gamma and implied volatility. Not to fear, fruits of those juicy premiums were able to be tasted elsewhere as plain vanilla shorts and even single stock futures threw off insane profits.

Wednesday, 03 August 2011 France, As Most Susceptble To Contagion, Will See Its Banks Suffer

In case the hint was strong enough, I explicitly state that although the sell side and the media are looking at Greece sparking Italy, it is France and french banks in particular that risk bringing the Franco-Italia make-believe capitalism session, aka the French leveraged Italian sector of the Euro ponzi scheme down, on its head.

I then provide a deep dive of the French bank we feel is most at risk. Let it be known that every banked remotely referenced by this research has been halved (at a mininal) in share price! Most are down ~10% of more today, alone!

•  French Bank Run Forensic Thoughts - Retail Valuation Note - For retail subscribers
•  Bank Run Liquidity Candidate Forensic Opinion - A full forensic note for professional and institutional subscribers

So, What's the Next Shoe To Drop? Read on...

For those who claim I may be Euro bashing, rest assured - I am not. Just a week or two later, I released research on a big US bank that will quite possibly catch Franco-Italiano Ponzi Collapse fever, with the pro document containing all types of juicy details. This is the next big thing, for when (not if, but when) European banks blow up, it WILL affect us stateside! Subscribers, be sure to be prepared. Puts are already quite costly, but there are other methods if you haven't taken your positions when the research was first released. For those who wish to subscribe, click here.

•  Contagion Forensic Review - Retail
•  Contagion Forensic Review - Professional

Those who wish to subscribe to BoomBustBlog research, analysis and opinion should click here! You can follow my public comments via the following avenues....

Reggie Middleton Boom Bust Blog

• 
• 
• 
• 
• 

Comments

[Zero Govt]

Brilliant Reggie ...i'd have your babies if i was female. Only problem is i'd nag you as your wife to dump the 2nd-rate cheapo clunker Google devices for smooth as silk hi-quality Apples. It would be bliss wouldn't it?

One question though. If BNP goes to zero do shorts win or lose as it gets de-listed? ..if this is a dumb question sorry, I've never followed a bankrupt company/bank all the way down the drain and would obviously like to being a full-time Grizzly Bear

[GottaBKiddn]

Thanks for the great research Reggie!

[Lazane]

 BNP should be sitting pretty good right now with a due bill and vault full of Jabiru Metals

http://webcache.googleusercontent.com/search?q=cache:minbR4deGXMJ:https:...

[Lazane]

Here it is, under 20.00 an oz for 680 million oz? heck I'll take over that position.

http://webcache.googleusercontent.com/search?q=cache:minbR4deGXMJ:https:...

[Lazane]

Lazane is curious 

I recall that this particular bank BNP last year acquired a billion + dollar silver position for future mine production when spot silver was under 20.00. Is their silver position visible to the naked eye on the financials?

[Coldfire]

BNP looks down its patrician nose at the market, confident that its lackeys in the French government will bail it out. But the new, interesting question is who will bail out France? Another great call, Reggie. 

[CvlDobd]

Not covering a winning short is ill advised at best.

[yabs]

volaliile BOA is dead nothing left to short

[yabs]

Reggie how does the Uk stand in this?

[Volaille de Bresse]

Zzzzzzzzzzzzzzzzzzzzzzzzz....

Reggie why don't you work your "magic" on Bank Of America instead? What? You're not allowed to by your owners? "Open fire on Europe only"' was the order? Okay then...

[hardcleareye]

Where the hell have you been????  Reggie's been all over BoA and Country wide for YEARS!!!!!!!!!  Note the date 2008 and this is one of MANY by Reggie....... just do a simple google search.

http://boombustblog.com/BoomBustBlog/Quick-Opinion-on-Bank-of-America-Buying-Countrywide.html

Do your homework before you write shit like that asshole!

[edotabin]

It should be rather obvious by now that Reggie's posts are very well-researched and of high value. We are lucky to have the free versions that probably contain more and more accurate info than many high-priced subscriptions.

[Reggie Middleton]

Whoa, that brings back memories. In particular:

I have been using this chart a lot lately, and it looks like I will be using it a lot more.

If the housing market goes anywhere NEAR its historical trends, we are going to see 30% to 40% drops in real prices. Many people poo-poo this notion, calling it apocalyptic. This is silly to me. Why didn't they poo-poo the notion of 40% to 200% price increases in the same time frame? Isn't that even more dramatic? For some reason, investors - individual and professional alike - have a hard time avoiding following the crowd. They try to catch bottoms (a risky and foolhardy endeavor in my opinion), time tops, and always seem to believe something will bounce back or XYZ asset will never go down in price over the long term (ala Fitch Ratings HPA models or the Japanese real estate market).

But BAC is Value Investing Like Buffet

No they are not. They are gambling like cowboys. The caveat to the Buffet argument is that BAC didn't buy the assets of Countrywide, they bought the whole company, kit and kaboodle - including the liabilities. I can understand if they bought just the servicing arm, but they didn't. Believe me, it is possible to pay less than zero for a company. The last time Buffet bought a financial company steeped in liabilities and risks on the cheap, he regretted it and realized that no matter how cheap he got the assets, he still overpaid. Risk vs. Reward: don't just stare at the reward side of the equation. If you must, simlpy reminisce on Solomon Brothers. In other words, the cost for buying Countrywide could easily be more than what is paid for it.

CFC is dangerous, plain and simple. The residential housing chart clearly shows how far out of whack housing values are in historic real terms. Come on, this makes the remnants of the Gold Rush look mild. If values come anywhere near the mean values of growth, BAC will be paying the CFC bill for a long time, and they will be paying a lot more than $6 billion, the cost of acquisition. Now, I hear there are performance covenants and guarantees in the purchase which may smooth out the pain, but CFC is in a world of hurt, and doesn't have much wiggle room to offer incentives. As I have stried my best to insinuate, it is possible to get CFC for free and still lose money. I know BAC has been in the business longer than I have been short CFC, but I made more money on that short than they did on their $2 billion investment. Sometimes, you are just wrong.

As of last month, CFC had more nominal dollars in REOs than they did market cap. Now, just add all of those garbage loans, the plethora of law suits, a few SEC and state banking authority investigations in a pot with a market where housing value corrects 30% in real terms with inventory building higher and higher, and we have a bitter tasting brew indeed... I hope those BAC shareholders have strong stomachs.

For all of you Eurocentric types, I've shorted a lot more US banks than European banks and haven't failed to hold my tongue once. That doesn't mean the Eurobanks are in any less a predicament though, does it?

[AnAnonymous]

Because those banks are under fire right now? Because this guy has sold ways to make money out of his accurate predictions that stated those banks would be under fire while the management, US citizen typical manner, was covering up?