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Largest Austrian Bank Crashes After "Revealing" 40% Surge In Bad Debt Provisions, Record Loss

Tyler Durden's picture




 

Update: just as expected, the confidence-preservation brigade is quick on the scene:

  • HUNGARY LOAN-REFUND LAW VIOLATES RULE OF LAW: BANK ASSOCIATION 
  • HUNGARY LOAN-REFUND LAW DAMAGES INVESTOR CONFIDENCE, BANKS SAY

Because clearly marking loans to fair value would crush investor confidence. And clearly investors are dumb enough not to realize that it is precisely by hiding what is beneath the surface, that they have zero confidence in the system.

* * *

Ever since 2012, when we first revealed that the biggest problem plaguing Europe's financial sector is the $2 trillion+ in bad debt on the books of European banks (not our numbers, the IMF's), it became clear that the only way Europe can avoid a complete financial meltdown coupled with currency disintegration, is if it can constantly keep rolling over said bad debt (obviously the only way to do that would be to create an epic debt bubble leading managers of other people's money to do idiotic things like buy Spanish debt at 2.75%). This is why not only the BOJ launched its mega QE in 2013, but why Draghi also kicked in with NIRP a month ago: the logic - do anything and everything to reflate the biggest credit bubble possible as otherwise European banks will have no choice but to face up to their trillions in bad loans.

Unfortunately for some banks, especially those which operate in Europe's supposedly highest-rated country, Austria, sometimes just being able to kick the can is not enough as on occasion a law will change, having the unintended consequence of forcing the bank to admit just how ugly its balance sheet truly is. That's what happened overnight when Erste Group, Austria's largest bank by assets, and the third biggest bank in Eastern Europe after UniCredit and Raiffeisen, announced that, oops, its earlier forecast about the amount of bad loans on its books is wrong, and will have to rise by a massive 40%, leading to what will be a record $2.2 billion loss, and triggering writedowns.

Shareholders, not used to being told the truth and instead preferring sweet, little lies, promptly took the stock to the woodshed.

Analysts, whose job it is to predict these things, were shocked:"This is a clearly bad surprise as it comes in addition to the already ‘badly surprising’ warning issued by the group at the beginning of this year,” Natixis Securities SAS analyst Steven Gould said in a note to clients. “These announcements hurt the management’s credibility going forward."

What was the catalyst for the early recognition of the massive writedown? Bloomberg explains:

The provisions are caused by new rules due to be approved by Parliament in Hungary today, forcing banks to refund “unfair” loan fees, and by the Romanian central bank’s push for faster bad-debt reduction amid the European Central Bank’s bank health check, Erste said. Writedowns on goodwill and deferred tax assets, triggered by the loan-loss provisions, may reach as much as 1 billion euros.

 

“By taking these measures, we have done everything in our power to avoid one-off effects from 2015 onward,” Chief Executive Officer Andreas Treichl said in the statement. “We are convinced that these measures will also help us pass the asset-quality review and stress test comfortably.”

...

 

Hungary contributed to Erste’s loss with a new law forcing it to repay some loan costs to customers. New rules due to be approved by Parliament in Budapest today will require banks to refund certain expenses on as much as 6.5 trillion forint ($28 billion) of loans going back as far as 10 years, according to the draft bill.

 

Higher bad-debt provisions in Romania, the Black Sea country of 20 million where Erste bought Banca Comerciala Romana SA for 3.75 billion euros in 2005, were caused by the central bank’s pressure on banks to clean up their balance sheets as part of the ECB’s bank health check, Erste said.

Ironically, it is the poor Eastern European sovereigns themselves who are forcing banks to do what is effectively is the job of their regulator, the ECB. Needless to say, the last thing the ECB will do is force banks to clean up their balance sheets: if anything Draghi knows full well that Erste is just the harbinger and Europe is loading to the brim with banks that are in the same situation. Should the ECB actually force banks to either revealt the true state of their bad debt and/or take measures to remedy it, the entire financial system would implode overnight.

Which is why instead we have an annual confidence building farce known as the "stress test", which in the past has seen Bankia and Dexia pass with flying colors, and this year would have also given Erste an AAA+++ grade as well:

The loss won’t hit Erste’s regulatory capital to the full extent, and the bank’s common equity Tier 1 ratio will reach about 10 percent by the end of the year without raising fresh capital, Erste said. That’s because goodwill, brand value and other intangible assets of its Romanian unit that Erste is writing down aren’t part of the regulatory capital.

Which also goes to show just how ridiculous Europe's definitions of capital truly are.

As for Erste, it's ok - the stock has been punished and now it is time for the BTFD algos to lift it right back to where it was, because as has been made very clear in the past 6 years, fundamentals are no longer relevant or matter when making capital allocation decisions. The only thing that does matter is how much more of a moral hazard will the central banks push the system into before one day what happened to Erste today takes place at the global level, and the can containing the entire modern financial system which is broken beyond repair can no longer be kicked down the street.

 

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Fri, 07/04/2014 - 12:57 | 4924784 IndyPat
IndyPat's picture

For "a process" that has been absolutely dormant for 4 yrs, I'm flattered you noticed, fuck face.
Rest a few more cycles, sleeperbot.

Fri, 07/04/2014 - 13:19 | 4924855 G.O.O.D
G.O.O.D's picture

Lol, so bot has replaced troll? Shit I have been asleep.

Fri, 07/04/2014 - 13:38 | 4924893 IndyPat
IndyPat's picture

Nothing personal.
I sniffed ya more up thread. You seem like good people.
Just haven't seen ya round, so, well you know, had to take some piss out of ya.
Welcome to fight club and I hope your nap was a refreshing one. You'll need it.
Sorry about what you woke up to. I didn't do it. May bed was burning when I woke up too.

Fri, 07/04/2014 - 14:02 | 4924941 G.O.O.D
G.O.O.D's picture

Not a prob. Had another account I used for years but then fight club got "nerfed" and i didnt take the calling of not bashing a certain band of people that IN MY OPINION is the cause of most if  NOT ALL of the financial problems in this country and around the world and badabing bang crashup boom ..banned.. banished from fight club.. fvkin pissed me off.. But I am over it now..*sigh* kinda.. So I used my backup account when i finally licked my wounds closed.

Fri, 07/04/2014 - 14:10 | 4924963 IndyPat
IndyPat's picture

Holy shit. I just fought Francis Sawyer and thought I was bashing a fucking bot! Made my Independence Day.
Better than fighting Lincoln or Gandhi any day in my book!
Same place, same time....next week?

Fri, 07/04/2014 - 14:36 | 4925026 G.O.O.D
G.O.O.D's picture

I remember francis tho and travis and top calling troll and mdb and shit.. how many others? A shame what has happened to this place. Here is a hint, I always spelled fuck, fvk with both accounts.

Sat, 07/05/2014 - 01:52 | 4926112 IndyPat
IndyPat's picture

You may actually pre-date me, thus making the above slightly more embarrassing ...

But...if you are THAT DUDE that filmed a rant in his garage while beating the shit out of computers and monitors, I'll send you a 5th of any thing your bad ass likes to drink.

That guy was a fury of inspiration. Truly.
NC day trader or something...
Wish I still had a link to the YouTube vid.

Fri, 07/04/2014 - 11:40 | 4924635 jubber
jubber's picture

don't forget they still have the Hypo Alpe timebomb to go off as well

Fri, 07/04/2014 - 11:44 | 4924644 falak pema
falak pema's picture

Monte paschi has an austrian competitor...

Fri, 07/04/2014 - 11:46 | 4924647 Stockmonger
Stockmonger's picture

This is all the Austrian economists' fault.

Fri, 07/04/2014 - 13:25 | 4924864 kurt
kurt's picture

They didn't go to an Austrian School

I hate those Mises to Pieces!

Fri, 07/04/2014 - 13:33 | 4924882 RaceToTheBottom
RaceToTheBottom's picture

Yep, it is their penchant for reality that they hate.

Fri, 07/04/2014 - 12:03 | 4924674 _ConanTheLibert...
_ConanTheLibertarian_'s picture

They revealed it while the US markets are closed. Jee what a coincidence.

Fri, 07/04/2014 - 12:07 | 4924682 kchrisc
kchrisc's picture

Yellen. Get your shotgun, a balckswan has been sited.

Fri, 07/04/2014 - 12:08 | 4924685 Vendetta
Vendetta's picture

taking the stock to the woodshed?  Its still not near its 'true value' ----> 0

Fri, 07/04/2014 - 12:13 | 4924691 whoopsing
whoopsing's picture

Soon to be renamed Erstwhile Group

Fri, 07/04/2014 - 12:21 | 4924703 SoDamnMad
SoDamnMad's picture

Anybody wonder why Sarcozy is being investigated for corruption?  He sold the Mistral ships to the Russians. Payback time for him and BNP Paribas. Now for the Austrians and Southstream.  Putin should have RTV show dummy pictures of Ft. Knox being near empty of gold.  That would make the Treasury's stock fall 40%.

Fri, 07/04/2014 - 13:55 | 4924927 WillyGroper
WillyGroper's picture

You read my mind. 

Well, well, well. What shall be his fate?

Has the war at the top started?

Fri, 07/04/2014 - 12:22 | 4924706 Caviar Emptor
Caviar Emptor's picture

Worry? Not moi. We are moving toward a global perpetual free money jobless economy! Money will simply trickle down from the wellspring at global central bank headquarters. So relax, chill, and let debt inflate away

Fri, 07/04/2014 - 12:42 | 4924752 goldhedge
goldhedge's picture

Unfortunately, for Austria, Belgium is da b1tch (for now).

Fri, 07/04/2014 - 12:44 | 4924758 goldhedge
goldhedge's picture

Austrian Banker:  Where is my copper and iron ore again?

Fri, 07/04/2014 - 13:02 | 4924808 Seize Mars
Seize Mars's picture

Hmm, is there any precedent for Austrian bank collapses serving as a bellwether for a larger collapse?

...any...precedent...at...all...?

Fri, 07/04/2014 - 13:05 | 4924817 Dre4dwolf
Dre4dwolf's picture

"Investor confidence " 

In this day and age, there is no such thing as an investor, since everything you could possibly "invest in" is some kind of fake paper scheme.

Fri, 07/04/2014 - 13:56 | 4924926 Emergency Ward
Emergency Ward's picture

Surges are supposed to be good, aren't they?  Surge in Aghanistan, surge in investor confidence, surge in home buying, surge in bad debt provisions...it's all good.

Fri, 07/04/2014 - 14:22 | 4924998 IndyPat
IndyPat's picture

Surge after a liter of rum....doubleplusgood at 43

Fri, 07/04/2014 - 13:21 | 4924859 mastersnark
mastersnark's picture

We can always just computer more money, right?

Fri, 07/04/2014 - 13:34 | 4924878 RaceToTheBottom
RaceToTheBottom's picture

At least Cyprus has good weather....

Vienna being the worlds most livable city......  Just don't use their banks....

Fri, 07/04/2014 - 13:57 | 4924929 orangegeek
orangegeek's picture

2007 was centuries ago.  How did that go again????

Fri, 07/04/2014 - 14:01 | 4924939 SmittyinLA
SmittyinLA's picture

I cant wait to see the Hitler downfall remake, "damn gypsies" 

Fri, 07/04/2014 - 14:03 | 4924942 razorthin
razorthin's picture

What, no FASB fraud allowed there?  So fucking free-market atiquated...

Fri, 07/04/2014 - 15:14 | 4925114 Al Huxley
Al Huxley's picture

I know, right?  What a bunch of dark-age losers.  Lucky they've got Draghi in their corner - he's the shit, man.  Those fags at the FED actually have to buy and sell shit to move the market, Draghi just opens his mouth and all those Eurobankers cream themselves.  He's the Chuck Fucking Norris of central banking.

Fri, 07/04/2014 - 14:03 | 4924946 TalkToLind
TalkToLind's picture

Thank goodness that unseemly things like this never happen in the US! 

Fri, 07/04/2014 - 14:05 | 4924949 Dublinmick
Dublinmick's picture

If you missed this on the last fourth of July thread .... it always makes me laugh, hope it will do the same for you

 

https://www.youtube.com/watch?v=SIxOl1EraXA

 

Marchons Marchons

Fri, 07/04/2014 - 14:09 | 4924957 Meat Hammer
Meat Hammer's picture

Yesterday, one of my neighbors told me that the bank had forgiven $300,000 of her mortgage and refinanced the balance so she could stay in her home.  She was dumbfounded and actually thought the bank had given up $300k of its own money.  I took this opportunity to explain fractional-reserve banking to her, give her the epiphanic knowledge of the role of the FED, AND tell her about ZH!  We have a new believer who has promised to spread the word...in California!

Fri, 07/04/2014 - 14:14 | 4924974 IndyPat
IndyPat's picture

Way to deliver the meat....brought it home like Fred Flintstone.

Fri, 07/04/2014 - 15:00 | 4925081 Cthonic
Cthonic's picture

Is the mortgage forgiveness relief act still in effect, or did you also tell her the IRS will be calling with regards to the resultant phantom income?

Fri, 07/04/2014 - 17:23 | 4925475 Hongcha
Hongcha's picture

Compassionate of you Meat Hammer ... did you tell her what your handle is?  Did it 'turn her on' ?

Also, did you tell her she may get taxed for that $300k giftee?

LOL.

Fri, 07/04/2014 - 19:04 | 4925008 Jack Burton
Jack Burton's picture

As long as bank management remains immune to legal responsibilites for their actions and remain almost immune to share holder responsibility, they will continue to do financial engineering that is designed to benefit Bank Managers bonus pools and their underlings pay packages and bonus pools.  The fraud is bad enough, but the effects of their frauds hurt the real economy outside finance and banking and when failure is complete, as in the cas eof Royal bank of Scotland as a single example, then government, i.e tax payers must pay. Not only that, but bankers failures require central bank policies that hurt savers and workers and lay the foundations of asset bubbles.

Follow the trail of failures and they lead to bankers. Follow the aid to bankers and it leads to government and central banks. Follow the overall costs and they are carried by taxpayers, workers, savers, small business and the real economy. The Finance Economy is a strip mining operation, blowing the tops off of the real economic moutains in order to strip wealth and transfer it to the top. The worst offenders are the Central Banks who form their policies to rescue bankers that should be allowed to fail. But claim to be too big to fail, this is simply black mail.

Since 2008 not a fucking thing has been done to punish them or let them fail. All policy has been to rescue them, at the expense of the real wealth creators. The defenders of this banker system are either part of that system or deluded or liars. This last 3 decades capitalism as we knew it has ended. Productive enterpise is replaced with rent seeking and fraud. Welcome to a government system that functions as the protectors of failed financial engineering models. They fail, we pay. Anyone care to explain how that fits the model of capitalism? It does not, these bankers in suits are rip off artists, not capitalists, in a capitalist economy, 2008 would have seen mass failures of financial enterprises and mass arrests for fraud. Non of this happended. But main street has been fucked, and government does not give a shit.

Fri, 07/04/2014 - 15:06 | 4925092 robertocarlos
robertocarlos's picture

Share-holders get burned. Bank makes full recovery. Some zeros get added to taxpayer bill. See, it's a nothing burger.

Fri, 07/04/2014 - 15:06 | 4925095 gmak
gmak's picture

Lol. so E3.50 drop is now a crash.  Looks like a weak slap to me. If price got below 18.00 - now that could be called a crash.

Fri, 07/04/2014 - 15:24 | 4925141 ms8172
ms8172's picture

Can someone tell me what bank is it???

Fri, 07/04/2014 - 15:46 | 4925205 Mr_Vladimir_Putin
Mr_Vladimir_Putin's picture

So I see. I make an agreement for the South Stream leg with Austria and now this happens. FUCK YOU AMERICA.

Fri, 07/04/2014 - 20:14 | 4925796 Aussiekiwi
Aussiekiwi's picture

Natixis Securities SAS analyst Steven Gould said in a note to clients. “These announcements hurt the management’s credibility going forward."

Fool me once shame on you fool me twice,?

Fri, 07/04/2014 - 23:22 | 4926003 JailBanksters
JailBanksters's picture

Funny not much on the Main Stain Media.

CNN top lead story

Teacher stabbed, killed in front of students in France

CNBC leads with

Bubble fears mean split opinions at ECB

 

Can somebody explain again how the Central Banks do not run the Main Stream Media

Sat, 07/05/2014 - 05:28 | 4926178 I_Am_
I_Am_'s picture

20 July 2014 or something......

 

Sat, 07/05/2014 - 08:37 | 4926277 Village-idiot
Village-idiot's picture

Those "experts" can't be very smart! Even I can see what's going on and what will happen over the next few years.

The Baby-Boomers that are retired are not in debt and aren't likely to take on any debt.

Those not yet retired are paying down their debt and are saving as much as possible as fast as they can. They are also not likely to add any debt.

There are a few exceptions to this but they're in the minority. Expect this to continue for the next 15-20 years.

That's it, in a nutshell.

Sat, 07/05/2014 - 14:33 | 4926969 AdvancingTime
AdvancingTime's picture

 It might soon become apparent the economic efficiency of credit is beginning to collapse and the additional money poured into the system coupled with lower rates can no longer drive the economy forward.  When this happens we are at the end game.

At some point the return on loaning money is simply not worth the risk!  Why do you want to loan money if most likely you will never be repaid or repaid with something that is totally worthless? When this happens the only safe place to store wealth will be in "tangible assets" and the only lenders will be those who print the money that nobody wants.

The collapse of credit can pose major problems such as what we saw when many sellers were forced to demand payment up front before shipping goods in 2008. More on this subject below.

http://brucewilds.blogspot.com/2014/06/the-economic-efficiency-of-credit...

 

Do NOT follow this link or you will be banned from the site!