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40% Of Eurozone Banks Are In Bad Shape

Tyler Durden's picture




 

Submitted by Raul Ilargi Meijer via The Automatic Earth blog,


David Myers Theatre on 9th Street. Washington, DC July 1939

Reuters has had a busy day today reporting on Europe’s banks and the stress tests the European Banking Authority is set to unveil on Sunday. And which put the EU and ECB on a see-saw like balancing act between credibility and panic.

The news bureau started off in the early morning citing a report by Spanish news agency Efe, which said 11 banks would fail the tests:

11 Banks To Fail European Stress Tests

At least 11 banks from six European countries are set to fail a region-wide financial health check this weekend, Spanish news agency Efe reported, citing several unidentified financial sources. The results of the stress tests on 130 banks by the European Central Bank are due to be unveiled on Sunday.

 

Four banks in Greece, three Italian lenders and two Austrian ones are among those that preliminary data showed had failed the tests, Efe said. It gave no details of how much capital the banks would have to raise and said this could yet change as numbers could be revised at the last minute. The euro fell on the report. Efe also identified a Cypriot bank and possibly one from Belgium and one from Portugal.

That’s right, the journalist lists 12 banks there, not 11. But anyway, that text is, miraculously, not available anymore, since at the same URL you now get the following article. Jean-Claude ‘When it gets serious, you lie’ Juncker’s first act in his first day in office as European Commission head may well have been to give Reuters a call. Make that a shout.

ECB Cools Speculation Over Bank Health Checks Ahead Of Results

The European Central Bank cautioned on Wednesday against speculation over the outcome of its stress tests after a media report said at least 11 banks had failed the landmark financial health checks, driving some banking shares lower. Austria’s Erste Group rejected the report from Spanish newswire Efe, which said that it along with banks from Italy, Belgium, Cyprus, Portugal and Greece, had failed the ECB review based on preliminary data, but it gave no details of the size of the capital holes at the banks.

 

The ECB, which will publish the test outcomes for 130 banks on Sunday, said final results had not yet been sent to the lenders involved, and it could not comment on individual institutions. “Any inferences drawn as to the final outcome of the exercise would be highly speculative until the results are final on 26 October,” said an ECB spokesman. The European Banking Authority, the EU watchdog coordinating the Europe-wide stress test, said the results would not be final until they are endorsed on Sunday just prior to publication. It had no comment on individual lenders.

 

Erste told Reuters it had no reason to believe it would fail the test. Banks have already had some feedback on the outcome of the tests through ‘supervisory dialogs’ with the ECB. They get the results on Thursday, three days ahead of the public announcement. The ECB becomes supervisor of the euro zone’s banks on Nov. 4. “Out of the supervisory dialogue we have no indication we won’t pass,” an Erste spokesman said. [..]“The bigger, more important question is not which banks have failed but which banks have achieved only a marginal pass,” said Jeremy Batstone-Carr at Charles Stanley.

 

Sources told Reuters that German public sector lender HSH Nordbank – which was not named in the Efe report – was set to pass the health checks. HSH was seen as the German lender most likely to fall short of requirements. Other than Erste, the banks listed by Efe were Italy’s Banco Popolare, Monte dei Paschi and Banca Popolare di Milano; Greece’s Alpha Bank, Piraeus Bank and Eurobank; Portugal’s Millennium BCP and Belgium’s Dexia. The agency also said a second, unnamed Austrian bank and a Cypriot bank were set to fail.

Looks like Brussels thinks it’s free of leaks to the media. Look, it’s Wednesday, and the banks will get results tomorrow. These are known, and can and will therefore be leaked. It’s 2014. Get with it.

Do note the words I bolded. Banks that only just slipped through the test are a major topic in this. If only because they’ve all had many months to shore up their capital by whatever means possible.

Those who still fail after that should probably have been long gone, while those who make it by a narrow margin are in bad shape. There are many ways to shore up your capital, including some that are temporary, just shy of being 100% legal and/or simply based on accounting tricks.

And of course many problems will remain hidden, for now, behind the veil of ultra cheap credit, either from central banks or corporate bond investors. Because that’s one of the damaging effects of ZIRP: it keeps zombies alive.

Then later in the day Reuters followed up with this interview with Pimco global banking specialist Philippe Bodereau, who says 18 banks will fail. Juncker must have thrown a hissy fit, and then lied about it.

Pimco’s Banking Expert Expects 18 Lenders To Fail ECB Stress Test

Fixed income investment firm Pimco’s global banking specialist, Philippe Bodereau, expects 18 banks will be seen to have failed the European Central Bank’s stress test of 130 regional lenders when results are published by the ECB on Sunday. Bodereau said in an interview on Wednesday the failures would likely include some German and Austrian cooperative and public sector banks, as well as weak regional lenders in the southern periphery.[..]

 

Describing the exercise as a milestone for cleaning up the banks, he said the test was “reasonably credible” when compared with previous tests and provided investors with a starting point to evaluate banks. “It’s pretty clear that not that many banks are going to fail it. A fair amount of balance sheet strengthening has taken place over the last six to nine months in anticipation of this exercise,” Bodereau told Reuters.

 

Big national champions across northern Europe and also in Southern Europe should pass quite easily, he said, although he expected almost a third of those tested to pass by a narrow margin. This group would likely include many medium-sized banks. “Probably the market will ask questions about their dividend policies, about their ability to grow balance sheet, etcetera. They will be under pressure to remain quite conservative on capital management and on deleveraging,” said Bodereau. [..]

 

Given recent market volatility, he said it was more likely there would be a positive than negative market shock after the results are released, and that share prices for the region’s biggest banks could be a market winner on Monday.

130 banks are being tested. 12-18 will fail. And on top of that, almost a third of 130, that’s over 40, will pass while still getting their feet wet. That means anywhere between 40% and 44% of Eurozone banks either fail or are in bad shape. And Bodereau suggests this will lead to a positive market shock on Monday morning. You might want to ask yourself what market position he has taken, how short he is exactly, and what book he’s talking.

If 40% of your banks are either dead in the water or barely floating, I’d say you have a major problem. ECB head Mario Draghi is undoubtedly still stuck in misplaced confidence on account of how well his ‘whatever it takes’ speech worked out, and ‘fresh’ EC head Juncker is as we speak emptying several bottles of champagne at once to celebrate his new job. He’s known to like his drinky.

And the ECB, under current conditions, seems almost entirely powerless to do anything about this, since, as Tyler Durden, using Barclay’s numbers, summarizes, it can only purchase $10 billion or so in ABC/Covered bond purchases per month, and another $5 billion per month in corporate bonds. There is simply not more eligible debt available for it to buy. Its mandate would have to be changed in drastic ways, and that doesn’t seem to be in the cards at all.

To keep markets afloat, however, as Bloomberg notes, $200 billion a quarter in QE from the central bankers is needed. The Fed is almost out, China has mostly withdrawn, Japan has too many domestic problems to look out the window, and the ECB can do just $15 billion a month. Confused? You won’t be .. after next week’s episode of .. the Eurosoap.

We all know our world, be it politics or economics, consists almost exclusively of spin these days, but in the face of these numbers I very much wonder how many people will be willing to bet their own money that Europe can get away with another round of moonsmoke and roses come Monday.

 

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Thu, 10/23/2014 - 15:32 | 5368622 NotApplicable
NotApplicable's picture

And those are the good ones!

Thu, 10/23/2014 - 15:46 | 5368693 Bloppy
Bloppy's picture

ECB can "talk" their way out of any crisis, remember?

 

Left-wing website: WE'RE the problem, not Islam!

Thu, 10/23/2014 - 15:54 | 5368722 Bell's 2 hearted
Bell's 2 hearted's picture

Bullard on stand by if any of their finance ministers need counseling on proper technique

Thu, 10/23/2014 - 15:58 | 5368748 ZerOhead
ZerOhead's picture

Jean-Claude ‘When it gets serious, you lie’ Juncker

Other than Nigel Farage he is perhaps the most honest politician in Europe...

Thu, 10/23/2014 - 15:37 | 5368658 Joebloinvestor
Joebloinvestor's picture

SEIZURES and bail-ins to follow.

Thu, 10/23/2014 - 15:43 | 5368676 philosophers bone
philosophers bone's picture

TRICK (weekend bank recapitalization) or TREAT (more QE).  Or Michael Myers going after bankers??   HallowQEen?

Thu, 10/23/2014 - 15:55 | 5368734 Bossman1967
Bossman1967's picture

no way print baby print or type away and all ok!!!! this game just getting started 2 years before the corporations will take over and the U.S. breaks up. a lot of pain for people that are not prepared so stack while its cheap

Thu, 10/23/2014 - 15:41 | 5368673 venturen
venturen's picture

if only the ECB had printed 5 Trillion Euros and given it to the bankers so the crooks could have paid themselves huge bonuses and left the moron taxpayer with the bill while inflating everything beyond the reach of the middle class...Oh Wait that was Obama's group. Duh! Who is going to pay off our massive debt?

Thu, 10/23/2014 - 15:42 | 5368678 Bell's 2 hearted
Bell's 2 hearted's picture

60% in good shape

 

glass more than half filled ...

Thu, 10/23/2014 - 15:44 | 5368689 jmcadg
jmcadg's picture

... and 60% are insolvent.

Thu, 10/23/2014 - 15:45 | 5368691 Bell's 2 hearted
Bell's 2 hearted's picture

"There is simply not more eligible debt available for it to buy. Its mandate would have to be changed in drastic ways,"

 

Exactly ... and why QE will end in US

 

no way no how can FR buy stocks unless congress on board 

Thu, 10/23/2014 - 15:48 | 5368700 yogibear
yogibear's picture

More and more printing. Fed buying up everything.

Thu, 10/23/2014 - 15:51 | 5368713 Bell's 2 hearted
Bell's 2 hearted's picture

no mention of leverage, but i know they're levered more than in US

 

a big reason for their problem a couple of years ago - their banks didn't need to set aside any reserves for sovereign debt ... a then came along Greece ...

Thu, 10/23/2014 - 15:58 | 5368751 Bossman1967
Bossman1967's picture

no the reason for thier problems is SOCIALISM you can't pay people not to work and if man dosnt work man dosnt eat. period.

Thu, 10/23/2014 - 16:12 | 5368818 Eirik Magnus Larssen
Eirik Magnus Larssen's picture

...

Thu, 10/23/2014 - 15:59 | 5368753 Bossman1967
Bossman1967's picture

no the reason for thier problems is SOCIALISM you can't pay people not to work and if man dosnt work man dosnt eat. period.

Thu, 10/23/2014 - 15:57 | 5368743 taketheredpill
taketheredpill's picture

 

 

 

So are these leaks just Trial Balloons?  How many Banks can they suggest will fail the tests without tipping the apple cart?  Sorry, did we say 11?  Mean't to say 5.

 

They have the raw data, the results depend on the scenarios they input and the assumptions they make, so couldn't they have Best Case and Worst Case Test Procedures that they can use (each of which would have different Best/Neutral/Worst case inputs and assumptions)?

Thu, 10/23/2014 - 16:13 | 5368825 gatorengineer
gatorengineer's picture

dont like the results the test must obviously be flawed....

I will take few than 5 for $200 jack....

Thu, 10/23/2014 - 16:07 | 5368791 SAT 800
SAT 800's picture

The Euro=interesting experiment. FAIL. what's next ?

Thu, 10/23/2014 - 16:15 | 5368833 gatorengineer
gatorengineer's picture

Trying the same thing on a global scale of course.  I assume that was rhetorical right?

Thu, 10/23/2014 - 16:22 | 5368868 SAT 800
SAT 800's picture

Not really rhetorical, no. It'll be interesting to see what comes next. maybe just the re-organization of Europe; none of us really know the future.

Thu, 10/23/2014 - 16:14 | 5368822 RaceToTheBottom
RaceToTheBottom's picture

The banks don't fail, the depositors do...

Thu, 10/23/2014 - 16:14 | 5368830 gatorengineer
gatorengineer's picture

The German tax payers, do.... Fixed it for ya

Thu, 10/23/2014 - 16:17 | 5368850 RaceToTheBottom
RaceToTheBottom's picture

US FED will also help out, via Belgium.  Actually US FED has it in their present purview.

 

Thu, 10/23/2014 - 17:49 | 5369371 Sirius Wonderblast
Sirius Wonderblast's picture

Already has been, for years, propping the ECB.

Fri, 10/24/2014 - 04:22 | 5371308 Ghordius
Ghordius's picture

keep that thought firmly in your mind, and don't let any doubt creep in it. belief has to be kept pure

Thu, 10/23/2014 - 16:28 | 5368896 Duffy Duck
Duffy Duck's picture

I'd wager that if I could look at the books - that the true figure is around 2/3 - 75% of EuroZ banks are effectively insolvent, and absurdly over-L'd.

 

I'd further suspect that those in the best shape have had the most contact, and cash, from the Fed and from Goldman - the Fed's Michael Clayton...

Fri, 10/24/2014 - 04:27 | 5371311 Ghordius
Ghordius's picture

keep in mind that it's 130 (big) banks out of 3'000 eurozone banks

keep also in mind that leverage of "classic" eurozone banks has a lot to do with the prevalence of business loans to SMEs

in English-speaking currency zones, companies issue way more tradeble bonds and stocks. In the eurozone, they keep more private and lend more from their bank. as such, it's comparing apples to bananas

Fri, 10/24/2014 - 05:08 | 5371342 SAT 800
SAT 800's picture

Yeah, but see right now, your apples are starting to look banana shapped; and this is bothering people, okay ?

Fri, 10/24/2014 - 05:25 | 5371354 Haus-Targaryen
Haus-Targaryen's picture

Must ... keep ... dream ... alive.  

 

https://www.youtube.com/watch?v=VnT7pT6zCcA

 

"meme"

Fri, 10/24/2014 - 05:47 | 5371357 LULZBank
LULZBank's picture

In defense of Ghordius, for argumetns sake, I'd say leverage and gearing ratios do have different standards in European Vs UK/US financial system.

i.e. in UK/US high gearing is perceived as a negative whereas in some EU countires its quite normal.

So it is like comparing apples to bananas.

Thu, 10/23/2014 - 16:44 | 5368911 Peter Pan
Peter Pan's picture

I hate to tell you this but it's not the banks that are in bad shape but their depositors. The depositors just haven't realised it yet.

Thu, 10/23/2014 - 16:39 | 5368970 Irishcyclist
Irishcyclist's picture

EBA realeasing the bad news early?

They must be nervous.

Bank insolvency in the Eurozone was never dealt with because that cunt Tim Geithner didn't want any more banks to fail.

6 years on - the duration of World War II - the banks in the Eurozone are still banjaxed.

Thu, 10/23/2014 - 17:48 | 5369369 Sirius Wonderblast
Sirius Wonderblast's picture

Quite. Also, nice to see "banjaxed" receiving wider use.

Thu, 10/23/2014 - 17:13 | 5369172 Jack Burton
Jack Burton's picture

Absorbing the highly prosperous 40 million strong Ukrainian nation will be a big boost to EU GDP and corporate earnings all across the EU. The huge 40 million person Ukrainian market, freed from Russian influence after 23 years of independence, will use it's new EU connections to buy from Germany, France and other manufacturers of the luxury goods and services the Ukrainian people have longed to buy. Now that Russia has been kicked out of Ukraine by the 23 year old independent democracy of Ukraine, their economic coat tails will drive EU GDP and perhaps even rescue the weaker economies by buying large food imports while sending millions of Kiev tourists to Greece, Spain and other sunny destinations.

The EU has a gem and a high economic performer to boost all EU corporate profits going forward. And the new Fracking miracle about to unfold after Kiev conquers Donbass, will juice the EU with cheap and plentyful frack gas, enough to drive the 30% now bought from the unreliable communist Soviet Union.

So look ahead, the EU has new economic assets and huge cheap energy resources soming online. Ukraine is already showing signs of being a next positive to GDP this coming winter.

Fri, 10/24/2014 - 06:54 | 5371415 Ancientkarma
Ancientkarma's picture

Hahahaaaa! Almost pissed myself.thank you.

Fri, 10/24/2014 - 12:44 | 5372766 tonyw
tonyw's picture

And the rumours are that Kiev has been ordered to attack the Donbass again in order to prop up porky's govt.

Thu, 10/23/2014 - 17:15 | 5369184 escapeefromOZ
escapeefromOZ's picture

Will see if Draghi will continue with the same failed policy : bailing out the banks and make the public pay . It would have been a much better policy to let the banks fail and give money to the taxpayers . Now there would not be a recession . 

Those so called economists never seem to learn . Long live Iceland !

Thu, 10/23/2014 - 17:18 | 5369202 WTFUD
WTFUD's picture

Banks take money seriously, no seriously banks take money, ok alright then banks are on the take seriously.

Haven't looked up the dictionary for the meaning of the word 'bank' however surely whatever definition therein must be dated. chuckle.

Do you all realize that the banks are stealing the interest from existing savers legally and using some of the proceeds to advertise for new customers? How sick is that?

Fri, 10/24/2014 - 04:04 | 5369355 Sirius Wonderblast
Sirius Wonderblast's picture

They've had months to massage this report. The only banks that will "fail" will be those that they can't possibly say wouldn't. The stress tests are a sick sham. There again, anyone who ever believed European accounting, let alone banker accounting, and especially let alone a combination of the two, frankly needed their bumps felt.

Thu, 10/23/2014 - 18:43 | 5369631 Ewtman
Ewtman's picture

Europe: The ONE economic comparison that must not be named -- just was...

 

http://www.globaldeflationnews.com/europe-the-one-economic-comparison-th...

 

Thu, 10/23/2014 - 20:53 | 5370185 AdvancingTime
AdvancingTime's picture

Great article! The euro-zone is in a far bigger mess than recent headlines and figures suggest. Most of the growth in the Euro-zone over recent years has been in Germany and that bright spot is now under pressure. Italy has been in recession for two years; France’s economy has been stagnant for months. Now that Germany is in trouble, many economist think the chances of a Japan-style deflationary spiral have risen sharply.

What it all boils down to is Germany can’t keep buying Greek bonds and other bad debt with German taxpayer money until the end of time. The article below looks at the corner Central banks have painted economies into by attempting to paper over reality and how these polices will hinders growth for as long as the eye can see.

 http://brucewilds.blogspot.com/2014/10/global-economic-malaise-due-to-debt.html

Fri, 10/24/2014 - 02:11 | 5371180 damicol
damicol's picture

Th real fact id that one single solitary bank is solvnet in Europe.

The most insolvent,

 

Deutsche Bank

Credit Agricole

BNP Paribas

Nat West bank

Barclays

go figure

 

And yet this fucking charade rolls on   wiping out a tiny handful of utterly inconsequential banks to make the worst criminal enterprises look more respectable.

A fucking witch-hunt  to soothe the fucking retarded sheep

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