As The French Bank Runs....

Reggie Middleton's picture

The BoomBustBlog forensic research combined with illustrative trade setups have literally enabled subscribers to profit, and profit significantly from the carnage going on in Europe - and by extension the carnage quickly heading across the pond to US banks. I would like to take the time to catalog the success of both the research and the trading strategies, but first l want to call attetion to FT Alphaville's most interesting article that basically calls SocGen out on its Lehmanization of its apparent liquidity woes - ingeniously titled, "On SocGen’s pawnshop defence".

Societe Generale has released ‘hard facts’ about its liquidity position on Monday.

Among the points the bank says it has managed to successfully manage a reduction in access to USD funding through a disposal of USD legacy assets, increased use of secured USD funding (repos), EUR/USD swaps and a “reduction  in short-term market positions”.

But as Espirito Santo Investment Bank’s Andrew Lim is quick to point out, the bank never actually states its short-term high quality liquid assets with respect to its short-term wholesale funding reqirements. That is, its coverage ratio.

In other words it’s all very well selling off legacy assets, and depending more on secured USD funding (repos) but that sort of strategy only really works providing you have a large amount of short-term high-quality liquid assets to pawn to begin with.

In other words it’s all very well selling off legacy assets, and depending more on secured USD funding (repos) but that sort of strategy only really works providing you have a large amount of short-term high-quality liquid assets to pawn to begin with.

Just like an individual facing a short-term liquidity crunch, if you happen to own a bunch of valuable gold jewelery, it’s more than likely you’ll be able to raise the short-term cash you need from the pawning industry. If you only own a bunch of already constructed flat-pack furniture, whatever its book value, you’re going to be less likely to raise the cash.

(The point to appreciate  here is that it’s only the ECB which lends cash against the equivalent of flat-pack furniture — possibly why the EUR/USD basis swap is one other option being presented by SocGen as a funding route. You switch your flat-pack furniture for euros, and then swap them for dollars in the currency basis swap market.)

Lim's notes, as quoted by Aphaville...

This is a fairer measure of the robustness of Soc Gen’s liquidity profile and in this respect, Soc Gen fares the worst out of all the French and investment banks (see page 4 of attached note). Soc Gen states that the group’s buffer of unencumbered liquid assets is €105bn - however, this includes lower quality assets (such as risky sovereign bonds which can now only really be repo’d with the ECB, and AAA credit assets like RMBS, which we do not consider high quality and liquid). We think its true high quality liquid asset portfolio is more like €42bn by our calculations.

Lim then states directly:

This model will come under threat if the credit and equity markets lose belief in the robustness of its short-term funding profile, in our view.

It is quite refreshiing to see some real and objective analysis come out of the sell side, particularly from one bank regarding another, but I must admit that if I had to pick a bone with Lim's analysis, it wouldn't be the content or quality, but the timeliness. What the hell took you so long to come to these rather astute observations, dude? Let's recap the BoomBustBlog perspective before I offer my opinion for the upcoming week...

Saturday, 23 July 2011 The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!: I detail how I see modern bank runs unfolding


Thursday, 28 July 2011  The Mechanics Behind Setting Up A Potential European Bank Run Trade 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!

I also provided a very informative document for public consumption which clearly detailed exactly how this French bank collapse thing is likely to go down: File Icon French Bank Run Forensic Thoughts - pubic preview for Blog - A freebie, to illustrate what all of you non-subscribers are missing!

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 contianing all types of juicy details...

This bank is trading down significantly as I type this. Of course, last but not least, Moody's finally chimes in with the obvious as it arrives at a smoldering pile of ashes and cinder where an investment house used to be, squirting its fire hose at full blast - all so after the fact: French Banks Poised for Moody’s Downgrade and Biggest French Banks May Have Ratings Cut by Moody’s on Greek Holdings (Duhhh!)

My next post will reveal my views on European bank liquidity (or more accurately, the lack thereof) and why the Lehmanization of big European banks is basically a forgone conclusion.

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chinawholesaler's picture

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web bot's picture

Exiting the middle game and entering the full blown end game.

This ain't going to be nice...

Spirit Of Truth's picture

Of course, the elephant in the room is that U.S. money market funds are hip deep in EU bank debt.

MFL8240's picture

No problem, they can print more and refill the tank.

Zero Govt's picture

Think a year or two past the Fed printing yet more and refilling yet another tank running on empty (bankrupt).. in that near-future Benny will be signing his resignation and The Fed will be on its suicide note

Trust me on this one, The Fed are teetering on a knife edge here with QE1, Lite and QE2 seen as 3 total failures... anymore counterfeit money printing and the Fed is dead, and they know it ...if QE3 gets rolled out Rothchild will have to create another central bank in the seared ashes of his last play-thing

irishlink's picture

SOCGEN  ceo just announced that Greece is not a problem for them!!!! Time for the French Citizens to check their deposit accounts?

falak pema's picture

they are de facto backed by bank of france...that is by our problem, we bend over backwards to save these banks.

Zero Govt's picture


bring on Eric Cantona for a 2nd attempt ...should work this time

JW n FL's picture



In other words it’s all very well selling off legacy assets, and depending more on secured USD funding (repos) but that sort of strategy only really works providing you have a large amount of short-term high-quality liquid assets to pawn to begin with.

Reggie's Not! a Star!

Reggie's Got! a Choppa in da Car!

Reggie! the banks thought they were bullet proof until they got hit the 5th time.. HUHHHHHHHHHH!

PulauHantu29's picture

Bank runs like Diarrhea....running all the time.

DoChenRollingBearing's picture

Maybe it's the coffee they drink over there...

falak pema's picture

france and Italy only believe in five legged beasts; with the government stamp on their rumps. Its the hallmark of respectability and it has to be conceived by an "enarch", the best and brightest from the state elitist administration school.

Jerome Kerviel is now the icon who represents how french banks are run. He, low echelon trader turned Madoff type rogue, tried to outsmart those high paid shills running Soc Gen's trading algorithms; 'La crème de la crème' like Abacus shill, Tourre.

French Madoff representing the french version of WS type ponzi. His ham handed play now looks like wizardry when compared to Soc Gen's superior play in Sovereigns...But France, that is us the tax payers, we will be asked to pay the bill, eventually. Wherever we may live we pay for France at home.

Léonard's picture

Why don't we speak about the desastrous situation of the English and American banks and California debt (13% of the GDP against 2% of the GDP of the Eurozone for Greece) ?

The USA and the US dollar are the real ones to get tossed, not the Euro. Everybody with a brain knows that.

richard in norway's picture

well it was always a question of who would crack frist, i expeced that a us state would go belly up before greece, but i was wrong, so far

walküre's picture

Without a FED that can print into oblivion and goes unaudited, the US States can live as long as their masters let them live.

Doesn't matter that majority of people in many states are dumber than a sack of shit and their productivity is worse than Kenya.

Zero Govt's picture

You can put off the truth, but you cannot hide from it.

No amount of Fed counterfeiting, politicians lying, banks, accountants and regulators sleight of hand will stop the rot that's set-in past 30 years (Reagan and Thatcher ceeded money creation to the retail bwankers)... or the inevitable collapse of this fake, corrupt house of cards

It was sort of nice while it lasted but the Mother of all credit creation schemes/scams was always going to end in the Mother of all credit card collapses... real wealth and real productivity cannot be produced by the charlatans (banker-politicos) in society running around with credit cards ..all ponzi schemes fall off a cliff eventually

walküre's picture

Because my French ami, the Anglo-Americans are the pirates that are currently looting the world markets again.

Rothschilds and Windsors are the unholiest alliance ever contrived.

Neither the French nor the Germans could beat them. Maybe the Russians and Chinese have better luck.

Americans MUST realize that it is the Windsors and the banking cabal that is running their country.

baltbear's picture


a. there are ruff mechanisms in place for muddling through some of that;

b. there's no snark appeal in in self-criticism.