When French bankers gorge on roasting PIIGS - OR - Can You Fool Everybody All Of The Time?

Reggie Middleton's picture

When French bankers gorge on roasting PIIGS...

From the NY Times:

— BNP Paribas, the largest French lender, announced a sharp decline in
third-quarter profit Thursday and said it was writing off 60 percent of
the value of all the Greek debt it holds, a belated acknowledgment that
the loans are largely unrecoverable.

bank, based in Paris, said it was setting aside about €2.1 billion, or
$2.9 billion, of the value of its Greek sovereign debt. It is writing
down about €116 million of exposure to Greek corporate bonds.

but so much of an acknowledgement, the write downs are woefully
insufficient - alas, they do match the numbers being bandied about in
the pop media so I guess management says that's sufficient "can kicking"

bank said it had also moved to address its exposure to embattled euro
zone government debt in the latest quarter, selling €1.9 billion of
Greek sovereign debt, €8.2 billion of Italian debt and €2.5 billion of
Spanish debt.

Yeah, but the question du jour (or should that
be "question du trimestre") is what is the P&L hit of those sales
(we all know they couldn't dump that trash without significant pain, and
how much of it (my guess, none) is illustrated in the Q3 numbers???

new Greek debt restructuring plan has adversely impacted this quarter’s
net income, which, otherwise, is in line with the performances of
previous quarters,’’ Baudouin Prot, the chief executive, said in a

But that "new" Greek restructuring plan was old
before it was even launched. Greece cannot last at 120% GDP under
extreme austerity measures. I know that, and they know it too. Back to
the drawing board, buddy!

large banks went on to write down half or more of their exposure, and
when a new Greek aid deal was announced on Oct. 27, its call for a 50
percent ‘‘haircut’’ on the loans merely codified what a number of banks
had already put into practice.

On with the game playing.
First, there was no haircut needed. According to TPTB, there was no
insolvencies, there would absolutely NO haircuts, defaults or
insolvencies (see Greek Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on Fire!). Okay, we were just joking, there weill be some haircuts, but no more than 21% (see A Comparison of Our Greek Bond Restructuring Analysis to that of Argentina). Did we say 21%? We meant 50%, must've been something lost in the translation (see How Greece Killed Its Own Banks!).
We said 60%, don't you understand. That is what the banks are writing
in, even though the IMF (whom Reggie Middleton has proven to be wrong to
the optimistic side nearly 100% of the time during this crisis, see Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!) says the haircuts need to be 75%. You don't even want to know what Reggie says they should be!  

professional and institutional subscribers! I will rerun the BNP
numbers with the most up to date and realistic numbers and publish them
within 24 hours. I will be avaialble to discuss them in the private
forums, or if you wish through a Google+ video conference call if enough
of you are interested.

Click to expand...



From Forbes.com:

outside of Europe ask why are government’s paying so much attention to
Greece, such a small economy in EU terms, instead of focusing on larger
problems, like Italy and Spain.  BNP Paribas’ third quarter earnings illustrate the case.

largest bank, BNP Paribas saw its profits drop 72% to euro 541 million,
after writing down an additional € 2.4 billion in Greek debt, 60% of
its total exposure. 

is the name of the game in Europe, and that’s why BNP Paribas has been
trying to cut its exposure and beef up its core tier 1 capital ratio. 
BNP lowered its exposure to bailed out peripherals (Greece, Ireland, and
Portgual) by 37.9% through the third quarter to € 3.3 billion.

BNP holds those € 3.3 billion in debt from bailed out countries (€ 1.6
billion of it in Greek debt), half a billion in Spanish debt, and a
whopping € 12.2 billion in Italian debt.  While the bank managed to cut
its exposure to Italy almost by half from € 20.5 billion, the value of
its portfolio has taken the hit.

Paribas’ total assets under management fell 4.1% to € 851 billion, as a
reaction to the drastic fall in asset prices, the accelerated outflow
of assets, and losses on its fixed income portfolio.

and investment banking (CIB) revenues tanked 39.8% to € 1.75 billion. 
It was a slaughtering at the CIB unit, with fixed income revenue down
33.4%, equities down 44%, and the financing business down 13.6%.

The bank remains leveraged 22.3 times and is struggling to lower its exposure to U.S. dollar funding... 

Through the third quarter, BNP Paribas lowered its U.S. dollar funding
needs by euro 20 billion, as it moves toward a 9% core tier 1 capital

share price action is another illustration of the dire situation in
Europe.  Despite these brutal results, shares in BNP Paribas actually
rallied on Thursday, up more than 7%.  The stock is still down almost
40% over the trailing 12 months, compared with a 10% drop for JPMorgan Chase and nearly 30% for Citi.

The large French bank is a perfect example of the interconnections between European nations and the exposure to peripherals. 
A default by Greece would spark a domino effect, as BNP Paribas would
have to go from writing down 60% of their peripheral exposure to 100%. 

As credit spreads widen in Italy, Spain, and the other PIIGS, further
stress would be put on BNP Paribas’ balance sheet, possibly tipping it
into insolvency.

Hmmm... This article was dated 11/03/2011. 


susbscribers were alerted to BNP Paribas woes as far back as May 2010.
We issued explicit and verbose warnings with valuation bands for BNP in
June of this year. I am not aware of ANYONE on the sell side warning of
BNP's woes. ANYONE!?!?!? Subscriptions, anybody? As you can see from the chart above, it has been a very profitable ride down on the short side. As excerpted from This Is Why BoomBustBlog Is THE Place To Go For Hard Hitting Research: BoomBust BNP Paribas?:

Bear Stearns/Lehman Deja vu?

Yesterday, in my post 'As The French Bank Runs....", I
queried of the sell side, "What the hell took you so long to come to
these rather astute observations, dude?" Well, in continuing my crusade
of truth against the potential insolvency of French banks, I reference
the WSJ article titlled "BNP Paribas Denies Funding Problem"

Paribas SA on Tuesday denied it is facing a dollar-liquidity problem,
as reported in an opinion column in The Wall Street Journal. BNP Paribas
said it is fully able to obtain U.S. dollar funding in the "normal
course of business," either directly or through swaps. In a column
published in The Wall Street Journal Tuesday, Nicolas Lecaussin,
director of development at France's Institute for Economic and Fiscal
Research, cited an unidentified BNP executive saying the bank "can no
longer borrow dollars."

A Wall Street Journal
representative wasn't immediately available to comment. BNP Paribas said
its has abundant euro short-term funding and has a net dollar
short-term funding with maturity shorter than a year worth €60 billion.
The bank has €135 billion in "unencumbered assets after haircuts" that
are eligible to central banks. The bank also said it is using
foreign-exchange swaps to more than offset the recent reduction and
"shortening" of funding from U.S. money market funds. French banks, in
particular BNP Paribas and Société Générale SA, have been hurt by a
perception that they face difficulties in tapping short-term funding in
the U.S., as money-market funds cut their exposure to the banks amid
fears about potential contagion from the Greek and broader European
sovereign debt crisis. Shares of BNP Paribas were down 8.3% at €23.97
recently, the biggest loser on the Paris stock exchange, where the
benchmark index was down 1.8%. SocGen was down 3%."

Hey, Big Wall Street Bank Execs Always Tell the Truth When They're in Trouble, RIIIIGHT????

Here's more of Alan Schwartz lying on TV in March of 2008

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 andagain in June of 2008.

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 lyingon 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...

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


So, does BNP have a funding problem, or is it at risk of the same?

subscribers know full well the answer to this question. I'm also going
to be unusually generous this morning being that our prime French bank
run candidate has approached my "crisis" scenario valuation band. So, as
to answer the question as to BNP, let's reference File Icon Bank Run Liquidity Candidate Forensic Opinion - A full forensic note for professional and institutional subscribers, and otherwise known as BNP Paribas, First Thoughts...

The WSJ article excerpted above quotes BNP management as saying: "The bank has €135 billion in "unencumbered assets after haircuts" that are eligible to central banks."

OK, I'll bite. Excactly how did BNP get to this €135 billion figure? Was it by using Lehman math? Methinks so, as clearly delineated in my resarch report on the very first page:


following two pages of this report go on to reveal the games being
played to potentially come up with a figure such as the 135 billion
quoted above. Boys and girls, I fear those may be Lehman bucks! 

those not familiar with the banking book vs trading book markdown game,
I urge you to review this keynote presentation given in Amsterdam which
predicted this very scenario, and reference the blog post and research
of the same:

But wait, there's more - much more!





document is 19 pages full of stuff that BNP management may have
forgotten to tell you, as well as valuation for both "crisis" and
bailout scenarios. What you have before is an anecdotal 5 pages. To put
this in perspective particularly since no on the sell side warned about
French bank risk before the fact, let's look at the chart as of the day
this research was released and I'll let you tell me if it was worth the


Roughly 50% and falling as Vol and gamma explode! 

Just to add a sense of chronological depth to this post, let's revisit the timeline from yesterday's piece, "As The French Bank Runs....": 

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

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

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!

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!

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

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.

Other reading of interest...

  1. The Anatomy of a Serial European Banking Collapse
  2. Greece Reports: "Circular Reasoning Works Because Circular Reasoning Works" - Or - Here Comes That Default!!!
  3. The French Banks Are The First To Accept a Voluntary Greek Restructuring
  4. Over
    A Year After Being Dismissed As Sensationalist For Questioning the
    ECB's Continued Solvency After Sovereign Debt Buying Binge, Guess What!
  5. Click, Clack, Click: The Sound of Falling Dominoes Behind The Door of the Eurocalypse!
  6. LGD 100+: What's the Possibility of Certain European Banks Having a Loss Given Default Approaching 100%?
  7. Eurocalypse
    Cometh! Principal Haircuts, Serial Bailouts, ECB Insolvent! Disruptive
    Sound Of Dominoes In Background Going "Click, Clack"! BoomBustBloggers
    Instructed To Line Up Bearish Positions Again!

BNP specific BoomBustBlog research and free public opinion...

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shortToZero's picture

I will come down to NYC and meet you in person and volunteer my time to do this. I am sure that this can be done.

shortToZero's picture

!!! - YO REGGIE -  !!!

you made AMAZING predictions over the years but i your articles, I am really sad to say this.... are of little value to me, and this problem is worse than before. I can't follow them. You combine old & new material, you format badly, you organize badly. I can't take it anymore. I will watch interviews with you because in your interviews you are very clear, charismatic etc'. But for your blog posts you must hire someone who will format it all. This message is simply not getting through to you.

Reggie, act now!! Hire someone!!

ebworthen's picture

Expose the nakedness!


DoctoRx's picture

Reggie, despite the apparent thoroughness of your research, how can you expect to be taken really, really seriously when you keep misspelling the name of the bank you are dissing?  It's Paribas, not Paribus . . .

DoctoRx's picture

Reggie, despite the apparent thoroughness of your research, how can you expect to be taken really, really seriously when you keep misspelling the name of the bank you are dissing?  It's Paribas, not Paribus . . .

ebworthen's picture

Potatoe potato, Tomatoe, tomato...

Or perhaps he intends it in the vein of "Morguen Stanley"?

Or a play on the prefix as is Pari-Lehman, or a bus on a road equal to Dexia?


PulauHantu29's picture

I heard on TV that the only "investors' buying Spain's soveriegn bonds are the Spanish Pension Funds and Banks by force from the Gubberment.

Is this true?

AldousHuxley's picture

Hi Sarah, Warren Buffett here. I just wanted to congratulated you on a terric victory.



NEOSERF's picture

The real question is if everyone is selling, who is buying this garbage?

Zero Govt's picture

Paul Krugman, Leo, Pivot Farm and the worst investor in the world, fulfilling their Congressional mandate to be total fuking morons (ie. back-stop bad bankers) Benny at The Fed

hopefulbutwary's picture

Reply to Zero  Govt - Benny at The Fed. One could say that the following is  a 'gas'.


I messed up on my first contribution or statement.  That was a few days ago.  I guess I will see if I mess up on this second one.

SoNH80's picture

Reggie, I really dig your Gonzo financial journalism.  Like the good Dr. Thompson in his day, you're one of the few voices speaking the truth in ours.  Good work again.

Zero Govt's picture

Reggie is one of the few waving the sword (Zulu spear?) of truth ...but far as i know Reg' is the ONLY financial journalist (analyst?) punching hard and true on the Euro Banks and for that matter the US Banks too

Reggie Rules ok

NotApplicable's picture

It's but so much of an acknowledgement, the write downs are woefully
insufficient - alas, they do match the numbers being bandied about in
the pop media so I guess management says that's sufficient "can kicking"

It's called Directed History. We all know they will get cut again, but since they're talking in percentages, they'll keep halving the half, without reporting the total. This will keep the headlines looking reasonable, and expectations will be managed yet another day. Otherwise, panic will ensue.

GeneMarchbanks's picture

Jefferies, Barclay's and eventually MS methinks.

falak pema's picture

Liar liar pants on fire...and the Contagion factor of sovereign debt of PIGS, its cumulative effect on P&Ls and share values... Ok point taken.

Now, Liar liar pants on fire ....and the derivatives melt down of US banks...gets their share value to what level and their subsequent insolvency and liquidiy problems to.....????

Lets have a comparative analysis of PRIVATE banking risks; Pigs contagion(EU) vs derivative bubble contagion (US). Its simple maths, of RM type,  from what I can see:

Total private banking debt that can fo Contagion bonfired in EU : 50 T (round number)

Total private banking contagion bonfire of debt spiral is US : 100-150 T (round number).

Who is in deeper financial shit?

Who can come out of a melt down faster? Especially if you consider the commercial trade deficits on macro scale of each continent, which are much higher on US side. Just pointing to some big macro numbers.