The Germans, Italians, French... Most Of Western Europe On The Brink Of Bank Collapse!

Reggie Middleton's picture

If those who persue the BoomBust regularly recall, on Tuesday, 12 July 2011 I penned BoomBustBlog Traders Armed With BoomBustBlog Research Caught ~10% Deutsche Bank Fall.

Deutsche Bank looks downright UGLY! Our new Forensic Analysis/Technical Trade combo called this one out about 2 weeks ago with impressive precission. Kudos to all who contributed.

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DB is now trading 20 points lower. Those that haven't read said piece should check it out for the resident BoomBustBlog traders and fundamental analysts caught this one right on the money and a full three months before the sell side and the pop media. On that note, Bloomberg reports Deutsche Bank Risk Seen Rising as Puts Appreciate Most in Europe: Options 9 Sep 2011

'' There could be ongoing pressure on German markets because people want to be short and there could be some pricing... The price of options to protect against losses in Deutsche Bank ...

It would appear that much of the pop media should follow the BoomBust a tad bit more closely. I will probably release the prime French bank run candidate some time soon, potentially on in the Max Keiser Show, as I drop little bread crumb hints along the way since the banks share price is already approaching our valuation bands. Anyone in the pop media space who wants a scooping story, here is the motherload. On a separate, but related note, let's look at what those DB puts looked like when the BoomBust first warned on said German bank... Click to enlarge...

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And this just in from Bloomberg: Germany Said to Ready Plan to Help Banks If Greece Defaults

Chancellor Angela Merkel’s government is preparing plans to shore up German banks in the event that Greece fails to meet the terms of its aid package and defaults, three coalition officials said.

The emergency plan involves measures to help banks and insurers that face a possible 50 percent loss on their Greek bonds if the next tranche of Greece’s bailout is withheld, said the people, who spoke on condition of anonymity because the deliberations are being held in private. The successor to the German government’s bank-rescue fund introduced in 2008 might be enrolled to help recapitalize the banks, one of the people said.

The existence of a “Plan B” underscores German concerns that Greece’s failure to stick to budget-cutting targets threatens European efforts to tame the debt crisis rattling the euro. German lawmakers stepped up their criticism of Greece this week, threatening to withhold aid unless it meets the terms of its austerity package, after an international mission to Athens suspended its report on the country’s progress.

Greece is “on a knife’s edge,” German Finance Minister Wolfgang Schaeuble told lawmakers at a closed-door meeting in Berlin on Sept. 7, a report in parliament’s bulletin showed yesterday. If the government can’t meet the aid terms, “it’s up to Greece to figure out how to get financing without the euro zone’s help,” he later said in a speech to parliament.

Well, Greece is going to default. We ran the numbers over a year and a half ago (A Comparison of Our Greek Bond Restructuring Analysis to that of Argentina) and nothing has changed except for the situation getting worse, reference Greece's Circular Reasoning and Greek Asset Sales Fall Short.

This is a tragic Greek comedy. Professional/institutional subscribers should reference the Greece Public Finances Projections Greece Public Finances Projections 2010-03-15 11:33:27 694.35 Kb in its entirety. For those who chose not to subscribe, I am posting excerpts from pages 5 and 6 from said document, don't read this while eating or drinking for fear of spitting up your lunch!

Hmmm... Remember, on Saturday, 23 July 2011 I suggested "The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!"

Specifically, we have applied writedowns on both banking and trading books with the results available in the subscription document File Icon The Inevitability of Another Bank Crisis? and well as File Icon European Bank's Greece exposure. In essence, after Lehman Brothers collapse, sovereign states appear to deem themselves obligated to bail out their respective insolvent banking systems, thus real stress tests should test both the banks' distressed portfolio carried at unrealistic marks and leverage and the sovereign's ability to aid said banks. Of course, this will be very unpopular from a political perspective because you will get a lot of nasty answers to the questions asked.

Below is a chart excerpted from our most recent work showing the asset/liability funding mismatch of a bank detailed within the report. The actual name of the bank is not at issue here. What is at issue is what situation this bank has found itself in and why it is in said situation after both Lehman and Bear Stearns collapsed from the EXACT SAME PROBLEM!

Note: These charts are derived from the subscriber download posted yesterday, Exposure Producing Bank Risk (788.3 kB 2011-07-21 11:00:20).

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Overnight and on demand funding is at a 72% deficit to liquid assets that can be used to fund said liabilities. This means anything or anyone who can spook these funding sources can literally collapse this bank overnight. In the case of Bear Stearns, it was over the weekend.

In reviewing my post on this topic in January predicting the fall of Bear - "Is this the Breaking of the Bear?", it is actually scary how prescient it actually was...

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Book Value, Schmook Value – How Marking to Market Will Break the Bear’s Back

Okay, I’ll admit it. I watch CNBC. Now that I am out of the confessional, I can say that when I do watch it I hear a lot of perma-bulls stating that this and that stock is cheap because it is trading at or below its book value. They then go on to quote the historical significance of this event, yada, yada, yada. This is then picked up by a bunch of other individual investors, media pundits and other “professionals,” and it appears that rampant buying ensues. I don’t know how much of it is momentum trading versus actual investors really believing they are buying on the fundamentals, but the buying pressure is certainly there. They then lose their money as the stock they thought was cheap, actually gets a lot cheaper, bringing their investment down the crapper with it. What happened in this scenario? These investors bought accounting numbers instead of true economic book value. Anything outside of simple widget manufacturers are bound to have some twists and turns to ascertain actual book value, actual marketable book value that is. This is what the investor is interested in, the ECONOMIC market value of book, not what the accounting ledger says. After all, you are paying economic dollars to buy this book value in the market, so you want to be able to ascertain marketable book value, I hope it sounds simplistic, because the premise behind it is quite simple – How much is this stuff really worth?. The implementation may be a different matter, though. I set out to ascertain the true book value of Bear Stearns, and the following is the path that I took...

I urge all to review that post of January 2008 and realize that negative equity is negative equity, and no matter how you want to label it, account for it, or delay and pray, broke is broke! This lesson should not be lost on the Europeans, but unfortunately, it is!

Those who wish to subscribe to BoomBustBlog research (wer're on a roll now, and global FIRE sector and bank failure is our forte) should click here. Stingy bastards and tightwads can always follow my free opinion via the avenues below...

Reggie Middleton Boom Bust Blog

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