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SocGen CEO Dismisses Rumors, Says France Is Not US - He's Right, It's Worse And Bank Run Is Likely In Progress Now!
We warned our paying subscribers about the potential of a French bank run over a month ago and described the process in illustrative detail. See:
- The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!
- The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs! (see the free links below at the end of this article for more)
We also named the most at risk bank in question, and offered explicit trade setups to monetize the situation. What is happening now in France is basically a foregone conclusion and was easily foreseen if one was paying attention, or even if one was just reading BoomBustBlog. Now comes the next step in the saga, and that is the debunking of misinformation and disinformation.
Contrary to what some European bank officials have to say, the current crisis is and EXACT mirror of 2008. Reference this excerpt from On Your Mark, Get Set, (Bank) Run! The Dominos of Serial Lehman 2.0 (x 4) In The EU Are Falling Into Place At A Quickening Pace:
Here are a few updates supporting my thesis of the potential of a serial bank run (another one, that is) in Europe and the Eurozone. As was the case with Lehman Brothers and Bear Stearn (two of the biggest bank collapses that I have called during this "ongoing crisis), counterparties and funding sources get gun shy in the face of overvalued collateral and signs of insolvency - as well they should. Remember, we have identified banks that are at risk of Lehman 2.0, and for the exact same reasons that Lehman was at risk of such. Reference The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!, which I consider to be a must read!
Focusing on the most pertinent and contagious of the issues at hand leads us back to the initial premise of a European bank run. I laid the foundation for said topic discussion last Thursday in "The Fuel Behind Institutional “Runs on the Bank" Burns Through Europe, Lehman-Style" and the fear du jour is a European version of the Lehman Brothers or Bear Stearns style bank run. The aforelinked at explanatory piece is a must read precursor to this illustration of what can only be described as the anatomy of a European bank run - before the fact. Remember how the pieces of the puzzle were perfectly laid together for a Bear Stearns collapse in January of 2008, two months before the bank's actual collapse? Reference "Is this the Breaking of the Bear?"(January 2008) in which Bear Stearns collapse was illustrated in explicit, graphic detail. Lehman Brothers wasn't impossible to see either (Is Lehman really a lemming in disguise? Thursday, February 21st, 2008 | Web chatter on Lehman Brothers Sunday, March 16th, 2008).
Yes, I did capitalize on the collapse of Bear Stearns and Lehman by identifying their failure and fall many months before it was every mentioned in the market or analysts reports. May I also add, they both had investment grade ratings from all three major purveyors of that... "stuff", and the management of both banks swore the market was simply exaggerating the problems when things did surface publicy. Using the archival power of the Web, let's reminisce, as excerpted from Four Facts That BANG JP Morgan That You Just Won't Hear From The Sell Side!!!
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Hey, Big Wall Street Bank Execs Always Tell the Truth When They're in Trouble, RIIIIGHT???? Here's more of Alan Schwartz lying speaking on TV in March of 2008 |
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Meredith Whitney downgraded Bear Stearns today Friday, March 14th, 2008: "Yep, she did it. The ratings agencies are considering a downgrade. I thought it was a joke when I first heard it. Let's just imagine that I used these wise sources as an info source to make my money! The ratings agencies and sell sides are jokes that I can no longer laugh at." |
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It's a good thing no one listened to that damn blogger who has the gall to charge money for his research and opinion. We had to listen to him bitch and moan for 2 months before... Is this the Breaking of the Bear? (January 2008)" Bear Stearns is in Real troubleBear Stearns will soon be, if not already, in a fight for its life... the biggest issues don’t seem all that prevalent in the media though. Bear Stearns is in a real financial bind due to the assets that it specialized in, and it is not in it by itself, either. For some reason, the Street consistently underestimates the severity of this real estate crash. If you look throughout my blog, it appears as if I have an outstanding track record. I would love to take the credit as superior intelligence, but the reality of the matter is that I just respect the severity of the current housing downturn – something that it appears many analysts, pundits, speculators, and investors have yet to do with aplomb. With a primary value driver linked to the biggest drag on the US economy for the last century or so, Bear Stearn’s excessive reliance on highly “modeled” and real asset/mortgage backed products in its portfolio may potentially be its undoing. This is exacerbated significantly by leverage, lack of transparency, and products that are relatively illiquid, even when the mortgage days were good." Notice how the worse case scenario is economic insolvency - as in less than ZERO!
Book Value, Schmook Value – How Marking to Market Will Break the Bear’s Back... 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. Then he had the nerve to come back with Bear Stearn’s Bear Market – revisited Friday, February 22nd, 2008 |
So, who was right?The Bust that Broke the Bear’s Back? Monday, March 10th, 2008: My ruminations on Bear Stearns look to come into their own… It looks as if the prudent should start debating the ability of Bear Stearns to remain a going concern Thursday, March 13th, 2008 Despite the Federal Reserve’s efforts Wall Street fears a big US bank is in trouble Thursday, March 13th, 2008: While I can't know for sure which IB it may be, my studies tell me it is either the Bear with the Broken Back or the Riskiest Bank on the Street, and that's where I'm concentrating my bets… From the London Business Times: Global stock markets may have cheered the US Federal Reserve yesterday, but on Wall Street the Fed's unprecedented move to pump $280 billion (£140 billion) into global markets was seen as a sure sign that at least one financial institution was struggling to survive. The name on most people's lips was Bear Stearns. [Hey, it pays to read the boombustblog.com. ...] “The only reason the Fed would do this is if they knew one or more of their primary dealers actually wasn't flush with cash and needed funds in a hurry,” Simon Maughan, an analyst with MF Global in London, said. Bear Stearn's new CEO states unequivocally that his balance sheet hasn't changed since November and that they have $17 billion of cushion. [He did not outright say that they were in good shape though. My concern was looking forward. They are a significant counterparty risk (along with Morgan Stanley) and they have significant illiquid level 2 and 3 assets as a percentage of tangible equity. In addition, 17 billion is not much considering the leverage and amount of illiquid assets held by this bank.] The case of bank management credibility and their proclamation in contravention to BoomBustBlog research has been called into question in more instances than just Bear Stearns!Reggie Turns Bearish on Lehman in February, before anyone had a clue!!!
Like I said above, it's not as if upper management of these Wall Street banks would ever mislead us, RIGHT???? Erin Callan, CFO of Lehman Brothers Lying giving an interview on TV in March and again in June of 2008. Even if the big Wall Street banks would lie to us, we have expert analysts at hot shot, white shoe firms such as Goldman Sachs, who of course not only are "Doing God's Work" but also happen to be the smartest of the smart and the "bestest" of the best, RIIIGHT!!!??? Below we have both Erin from Lehman AND Goldman lying on TV in a single screen shot. Ain't a picture worth a thousand words???
We even had the inscrutable Meredith Whitney say "To suggest that Lehman Brothers is going out of business is a real stretch!" (She OBVIOUSLY DOESN'T READ THE BOOMBUST) as well as Erin Callan, the CFO of this big Wall Street bank on TV lying interviewing again... But that damn blogger guy Reggie Middleton put his "put parade"short combo on Lehman right about that time, and had all of these additional negative things to say... Lehman stock, rumors and anti-rumors that support the rumors Friday, March 28th, 2008 It appears that I should have dug deeper into Lehman! May 2008: I never got a chance to perform a full forensic analysis of Lehman, but did put a fair size short on them a few months back due to their “smoke and mirrors” PR (oops), I mean financial reporting. There were just too many inconsistencies, and too much exposure. I was familiar with the game that some I banks play, for I did get a chance to do a deep dive on Morgan Stanley, and did not like what I found. As usual, I am significantly short those companies that I issue negative reports on, MS and LEH included. I urge all who have an economic interest in these companies to read through the PDF’s below and my MS updated report linked later on in this post. In January, it was worth reviewing “Is this the Breaking of the Bear?”, for just two months later we all know what happened. I came across this speech by David Eihorn and he has clearly delineated not only all of the financial shenanigans that I mentioned in my blog, but a few more as well. Very well articulated and researched. So, who was right? The Ivy league, ivory tower boys doing God's work or that blogger with the smart ass mouth from Brooklyn? Please click the graph to enlarge to print quality size.
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The reason why I went into such an indepth recollection of the events of the rather recent past is to draw distinct parallels between Bear Stearns and Lehman Brothers, both banks whose problems I recognized ahead of the pack - and the French banks, whose problems I outlined for subscribers early on as well. Bear and Lehman underwent a liquidity crisis that was the result of solvency issues. Basically, assets purchased on leveraged basis for the balance sheet dramatically devalued, leaving a gaping equity hole. This equity hole scared off counterparties who gave liquidity, or forced them to raise collateral calls, calls which Bear and Lehman didn't have the money to pay due to asset/liability mismatch. Somebody let me know if this sounds familiar...
As excerpted from Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such:
The biggest European banks receive an average of US$64bn funding through the U.S. money market, money market that is quite gun shy of bank collapse, and for good reason. Signs of excess stress perceived in the US combined with the conservative nature of US money market funds (post-Lehman debacle) may very well lead to a US led run on these banks.
And here's the assets that were devalued and the games being played to hide the gaping equity hole on the European end...
< p>The problem then is the same as the European problem now, leveraging up to buy assets that have dropped precipitously in value and then lying about it until you cannot lie anymore. You see, the lies work on everybody but your counterparties - who actually want to see cash!
As excerpted from "The Fuel Behind Institutional “Runs on the Bank" Burns Through Europe, Lehman-Style":
The modern central banking system has proven resilient enough to fortify banks against depositor runs, as was recently exemplified in the recent depositor runs on UK, Irish, Portuguese and Greek banks – most of which received relatively little fanfare. Where the risk truly lies in today’s fiat/fractional reserve banking system is the run on counterparties. Today’s global fractional reserve bank get’s more financing from institutional counterparties than any other source save its short term depositors. In cases of the perception of extreme risk, these counterparties are prone to pull funding are request overcollateralization for said funding. This is what precipitated the collapse of Bear Stearns and Lehman Brothers, the pulling of liquidity by skittish counterparties, and the excessive capital/collateralization calls by other counterparties. Keep in mind that as some counterparties and/or depositors pull liquidity, covenants are tripped that often demand additional capital/collateral/ liquidity be put up by the remaining counterparties, thus daisy-chaining into a modern day run on the bank!
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I'm sure many of you may be asking yourselves, "Well, how likely is this counterparty run to happen today? You know, with the full, unbridled printing press power of the ECB, and all..." Well, don't bet the farm on overconfidence. The risk of a capital haircut for European banks with exposure to sovereign debt of fiscally challenged nations is inevitable. A more important concern appears to be the threat of short-term liquidity and funding difficulties for European banks stemming from said haircuts. This is the one thing that holds the entire European banking sector hostage, yet it is also the one thing that the Europeans refuse to stress test for (twice), thus removing any remaining shred of credibility from European bank stress tests. As I have stated many time before, Multiple Botched and Mismanaged Stress Test Have Created The Makings Of A Pan-European Bank Run!
The biggest European banks receive an average of US$64bn funding through the U.S. money market, money market that is quite gun shy of bank collapse, and for good reason. Signs of excess stress perceived in the US combined with the conservative nature of US money market funds (post-Lehman debacle) may very well lead to a US led run on these banks. If the panic doesn’t stem from the US, it could come (or arguably is coming), from the other side of the pond. The Telegraph reports: UK banks abandon eurozone over Greek default fears
UK banks have pulled billions of pounds of funding from the euro zone as fears grow about the impact of a “Lehman-style” event connected to a Greek default.
Senior sources have revealed that leading banks, including Barclays and Standard Chartered, have radically reduced the amount of unsecured lending they are prepared to make available to euro zone banks, raising the prospect of a new credit crunch for the European banking system.
Standard Chartered is understood to have withdrawn tens of billions of pounds from the euro zone inter-bank lending market in recent months and cut its overall exposure by two-thirds in the past few weeks as it has become increasingly worried about the finances of other European banks.
Barclays has also cut its exposure in recent months as senior managers have become increasingly concerned about developments among banks with large exposures to the troubled European countries Greece, Ireland, Spain, Italy and Portugal.
In its interim management statement, published in April, Barclays reported a wholesale exposure to Spain of £6.4bn, compared with £7.2bn last June, while its exposure to Italy has fallen by more than £100m.
One source said it was “inevitable” that British banks would look to minimise their potential losses in the event the euro zone crisis were to get worse. “Everyone wants to ensure that they are not badly affected by the crisis,” said one bank executive.
Moves by stronger banks to cut back their lending to weaker banks is reminiscent of the build-up to the financial crisis in 2008, when the refusal of banks to lend to one another led to a seizing-up of the markets that eventually led to the collapse of several major banks and taxpayer bail-outs of many more.
Make no mistake - modern day bank runs are now caused by institutions!
Just in from Reuters, by way of Zerohedge:
That sudden rise in risk perception, combined with sharp share price falls in French banks, prompted some banks in Asia to speed up reviews of counterparty risk and look at whether they should cut exposure to European lenders, sources at each of the six banks in Asia said. Contacted about the moves by the banks in Asia, a spokeswoman for top French lender BNP Paribas <BNPP.PA> in Paris said: "We never comment on market rumours."Societe Generale <SOGN.PA> had no immediate comment to make while a spokeswoman for Credit Agricole <CAGR.PA>, which will publish its second-quarter earnings later in August, said the bank would not make any comment.
The banks in Asia and the sources -- a mix of risk officers, senior traders and loan bankers -- could not be identified because of the sensitive nature of the information.
The head of treasury risk management for Asia at one bank in Singapore said their credit lines to large French banks had been cut because of the perceived risks in lending to these counterparties.
"We've cut. The limits have been removed from the system. They have to seek approval on a case-by-case basis," the treasury risk official said. The bank official declined to name the French banks.
A senior credit trader in Singapore said that when a bank's shares fall that sharply their risk officer will automatically look at how much exposure they have to that lender.
And more:
Banks' heightened responses could exacerbate the market strains if they all acted simultaneously with portfolio-at-risk modelling, analysts said."The thing is if they all use it at the same time they will all sell at the same time when risk goes up, and that will drive prices down and it is like a snowball because then the prices go down and then your value-at-risk ratio will tell you 'oh, I must reduce my risk even more'," said Mark Matthews, head of research at Julius Baer.
Several of the traders and bankers in Asia said that while they had not cut all exposure to any particular institution, they were very cautious about taking on new trading positions with them.
A senior risk officer at a bank in Singapore said "obviously we are having a review", when asked if they were reassessing their positions with European counterparties.
Bankers and risk officers at the five institutions in Asia that were still dealing with French banks said that while short-term lending of up to 30 days was still taking place, they were conducting a thorough review of longer-term credit lines regardless of the type of transaction.
"It's all in relation to (our) take on a French bank's credit risk, regardless of whether it's a swap or interbank lending transaction," said a senior loan banker at a Japanese bank.
Hopefully, I have given a clear enough picture of the parallels between the French banks and Bear Stearns and Lehman Brothers from a historical perspective. Now, let's hear what French bank management has to say...
Bloomberg reports SocGen Denies Rumors About Credit as Shares Tumble
Societe Generale (GLE) SA, France’s second-largest bank, denied “all market rumors” and asked the nation’s market watchdog for an investigation after speculation France’s creditworthiness was in doubt sent the shares tumbling.
The lender’s performance in July and early August shows it will be able to post “solid” results in the future, Paris- based Societe Generale said in a statement after the market closed yesterday. The bank asked France’s Autorite des Marches Financiers to open a probe into the origin of speculation that is “extremely harmful to the interests of its shareholders.”
Doesn't this sound like the Lehman and Bear Stearns Executives in the videos above???
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The Complete "Run on the Bank" User Guide!
- Game Over For The European Ponzi Scheme?…
- France, As Most Susceptble To Contagion,…
- The Mechanics Behind Setting Up A Potential European Bank Run Trade and European Bank Run Trading Supplement
- Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such
- The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!
- Multiple Botched and Mismanaged Stress Test Have Created The Makings Of A Pan-European Bank Run
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What source other than your opinion or desire? People pay for this?
What a load of trash!
Quoting 'unnamed sources', 'people familiar with the matter', 'traders', 'sources' - like Daily Mail ?
Utter rubbish - I hope you are short and I hope you burn and learn!
Excellent analysis, commentary and graphics!
A very insightful piece, but reggie misses a crucial point that IS different vs lehman/Bear: Central banks and regulators and govts. can now also draw an that experience and they will act differently than 3 years ago. And, the problem this time is not some subprime RMBS, CDOs etc but too much leverage (too little deposits and short term assets) supporting too many govt bond holdings. herein lies the rub: the ECB (Fed, PBOC, BoJ) can and ultimately will buy up as many govt. bonds as needed to prevent lehman 2.0 from happening. I think everybody of them this time knows that things canT be contained except right when they start to surface. So they will do everything they can and they will very likely succeed. Or else, all your money making strategies are toast, too as paper money (as a claim against busted states) will have no value any more.
I think you are all wrong and you are going to learn it (most likely) the hard way. Don’t confuse speculation with real economics.
Is France under a speculative attack? YES. Are France economics Bad ? NO.
They are the biggest or near the biggest worldwide in construction ( Vinci , Bouygues, ect. ), banking (BNP, SocGen, Natixis) , car manufacturing (Renault, Peugeot, Citroen), airplane construction (Airbus), Satellite operation ( Astrium ), nuclear energy (Self Sufficient – They don’t even need your so beloved Gasoline ), Electronics ( Alcatel) , Luxury items ( LVMH, Hermés, all the fashion designers) etc. etc. etc.
Don’t you think that is a bit too odd when compared in size with all the Europe and even the Great USA? What do you have that compares? Apple? Intel?...General Motors? Who wants to buy a GM car? People from Papua New Guinea?
They have a lots of sweet potato and sago ... wanna swap?
(Hint: you might want to think about it for a while before you answer.)
Renault, Citroen, and Peugeot? If it weren't for the French market, which buys 75% French cars, they would be just another Fiat. Airbus? Have you not followed the disaster that was the A380 development, or the A400M development?
France is just another overly bloated social welfare state. Yes their economics are bad, and unsustainable in the long term. And their banks, like all the others, are overextended on speculative loans to everyone, including bankrupt soveriegns.
That is why they are 'under attack'. Blame the speculators indeed.
You are missing the point. The French economy is not in trouble because of a lack of quality products being offered from their firms. It is in trouble like the rest of us because of massive amounts of debt. That debt has created massive inbalances in the production and consumption trends on this planet. It is unsustainable and when it corrects we will have a depression. Period. Dont be so defensive, look at the facts.
When the european banks, specifically SocGen collapse, it willl wipe out several American banking giants. I do not want to be around when that happens. Americans depending on the government for their survival will become more than aggravated when teh check no longer supplies enough food, and the riots will begin.
Remember, this 'aint england, Americans own guns.
Wow. Excellent stuff as always, Reggie. Thank you.
If I were working in the finance industry I would be devouring all of your stuff. But I don't work in finance. I have morals. I'm an engineer.
Not working on smart bombs are you?
Yeah, snarky skunk hunting smart bombs ...
Reggie. He is right. France is not the US its at least 11 times worse and as a good friend told me the whole EU is running on the last bit of smoke they have to keep the mirror effect working. Wow incredible times!
When goverment consumes over 50% of GDP the end is near. France is a dead woman walking.
And, which direction is the US headed?
AA+
Great information as always and just think, there are people who will listen to those analyst on CNBC and buy the stock. People still listen to Cramer and he is saying buy buy buy BOA and citibank. People have short memories.
Also, remember Enron.
Looks like they need pan-Europe tarp, pan-Europe-short-sale-ban and global QE to infinity.