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On Europe (Or The 28 Stooges)

Tyler Durden's picture




 

Submitted by Raul Ilargi Meijer via The Automatic Earth blog,


Russell Lee Sharecropper mother teaching children in home, Transylvania, LA. Jan 1939

Europe is fast turning into a freak comedy show. Very fast. Or maybe we should say it’s always been one, and it’s just that the Larry, Curly and Moe moves are only now coming out in droves. Or maybe, what do I know, we’re just starting to understand how much talent for farce and slapstick the boys from Brussels have always had.

Just Wednesday, I wrote in 40% of Eurozone Banks Are In Bad Shape about a Reuters report based on Spanish source Efe, that claimed 12 banks would fail the ongoing stress tests, results of which are due this Sunday at 12pm CET (their daylight savings time will be over by then). I noted how the indignation expressed over the leaked data by Brussels seemed odd, since in 2014 everything leaks.

Then, I cited Pimco’s global banking specialist, Philippe Bodereau, saying he thought 18 banks would fail, and moreover, almost a third would narrowly pass. Something that according to several sources was important than who actually failed. Because all banks have had many many months to shore up their capital positions, and if they’re now still below or just above the dividing line today, that’s suspect at best.

130 banks were supposed to have been tested, and ‘almost a third’ of that is some number north of 40. Add the 12 to 18 sure failures, and you’re north of 40%.

But today Bloomberg reports on a new draft they have obtained, which raises the numbers even further.

ECB Set to Fail 25 Banks in Review, Draft Document Shows

25 lenders in the European Central Bank’s euro-area bank health check are set to fail the regulator’s Comprehensive Assessment, according to a draft communique of the final results, seen by Bloomberg News. 105 banks are shown passing the review, according to the draft statement. Of the lenders that failed, about 10 will still face capital shortfalls they need to plug, according to a person with knowledge of the matter, who asked not to be identified…

If 25 fail, and ‘almost a third’, i.e. at least 40, narrowly make it, 50% or more of Europe’s banks are in trouble. And that’s after they’ve been given ample time to borrow, sell assets, do whatever it takes to pass. More than half of all banks. And sure, Europe has scores of ‘systemic’ or Too Big To Fail banks, and they’ll never be put in the corner with the dunce hat on. But that’s not as great as it may seem, it just means we’re not allowed to know what shape they’re really in, and if they threaten to topple over, taxpayers will need to pay up.

And that’s still not all. Catherine Boyle explains a few things at CNBC about the stress tests:

What’s Missing From The EU Bank Stress Tests

The EBA stress tests involve running banks’ books through shocks like a 14% drop in house prices from current predictions. However, they do not involve deflation, or a sustained period with higher or lower prices for commodities such as oil – both of which the euro zone is potentially facing.

If ‘shocks’ like these are the worst case scenario of the tests, and half of the banks fail that, you might want to speak of a systemic problem. Many housing markets are still very expensive, let’s see interest rates go up to any historic average of your choosing and then see what happens to home prices. No review of what havoc deflationary pressures or oil and gas prices might do to banks sounds hardly serious either.

There is also disagreement over how certain assets may be classed. In weaker economies like Portugal, Greece, Spain and Italy, the governments have passed laws allowing banks to convert deferred tax assets (DTAs), which are tax payment deferrals generally awarded during times of weaker profitability, into more capital-enhancing deferred tax credits (DTCs).

Translation: local accounting tricks are still alive and well. Deferred tax credits are just one example, obviously.

Oliver Burrows, senior analyst at Rabobank, told CNBC: “European banks have actually done quite a lot in terms of balance sheet repair and capital raising. To give it additional credibility, you need to have some victims, and those are going to be quite predictable. Another fear is that if there is a rush of these weaker “victims” to raise more capital, there may not be much demand for it – and that could weaken the sector further. “Who would want to support or buy new equity in these banks?” Burrows asked.

That’s it right there: they’ve done a lot, and still fail. So where are they going to get the rest of the investments they need?

And then the EU comes this morning with a new stunt worthy of Larry, Curly and Moe. They’ve sent new calculations about members’ economic data, and the contributions they need to send to Brussels based on those data, around, and it’s a shame all the news is about how Britain is told to pay a billion and a half or so extra. Holland must fork over much more per capita, for one thing.

But what makes it even better is that Greece has been told to pay more, and that can go straight to Germany, which is set to receive a billion. Explain that. Italy has to pay extra, France receives.

The problem is of course, Brussels feels it doesn’t have to explain anything it does. They put the data on some webpage before even informing the member nations, as per the Dutch finance minister. Who, like Cameron, had no idea where the numbers came from. Brussels thinks: you don’t have the guts to break up the EU, anyway. So what are you going to do about it? Well, Cameron feels Nigel Farage breathing down his neck, that’s what.

The best part is that everyone’s falling over one another to assure us that the new accounting methods, which include drugs and prostitution, have nothing to do with this madness. But isn’t it just great to ponder that Britain has to fork over an additional billion only because the French have cheaper hookers?

Someone finish off that inane union before it starts to do real serious harm. Because it will.

 

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Sat, 10/25/2014 - 17:57 | 5377186 knukles
knukles's picture

OK, so the stress tests are a sham.
Does the urinal work?

Sat, 10/25/2014 - 18:10 | 5377218 kaiserhoff
kaiserhoff's picture

You know as well as any of us knuks, that most European plumbing can be described as...,

vintage... and down the hall;)

Sun, 10/26/2014 - 00:41 | 5378349 Mister Ponzi
Mister Ponzi's picture

In some European countries like Holland and Germany prostitution is not only legal but prostitutes pay taxes and receive social security benefits. So, why shouldn't it be included in GDP calculation?

 

But except for this, I wholeheartedly agree: Break up the beast!

 

Sun, 10/26/2014 - 06:42 | 5378666 Haus-Targaryen
Haus-Targaryen's picture

Calling Mr. Putin- 

 

Yes, I'd like to order one "destruction of the EMZ" with a large helping of "disorganized EU collapsed" and a good amount of Chaos and finger pointing as my two sides.  

 

k Thanks! 

Sun, 10/26/2014 - 08:35 | 5378810 Ghordius
Ghordius's picture

correct. other countries, most notably Sweden as first, but now also Norway and Island don't forbid women to prostitute themselves, but make the payment for sex a crime, with the payer the only offender

about the article: usual rah-rah "look how stoopid..." followed by one hilarious example, i.e. how the post-fact adjustments to GDPs for national reasons results in a higher bill for EU contribution... because the bill is based on GDP! duh... how could we see that coming?

I like the title, though: The 28 Stooges. I find it fitting, and very European. That's what we are. The very criticism of the article highlights that we are 28. There is no one beast to break, except if you are asking for the breakup of the 28 as sovereigns

the org called EU is based on agreements, which result in a club fee based on the GDP of the member. Cameron claims a higher GDP? Who cares if it's based on prostitution without taxation... it results in one reason more for him to claim that it's not the right club for the UK

Sun, 10/26/2014 - 13:22 | 5379540 Haus-Targaryen
Haus-Targaryen's picture

I think he is advocating for the destruction of the "club" then. 

 

Surely you do see how if the club is destroyed, it does not in turn destroy the 28 other states along with it? 

Mon, 10/27/2014 - 03:50 | 5381279 Ghordius
Ghordius's picture

of course, if you destroy the club, what remains are the 28 sovereigns. and who profits from that? we are talking of powerful interests, here

Sat, 10/25/2014 - 23:55 | 5378256 CASTBOUND
CASTBOUND's picture

my friend's step-sister makes $67 every hour on the computer . She has been fired from work for 7 months but last month her pay check was $14130 just working on the computer for a few hours. blog here... www.Yelptrade.com

Sun, 10/26/2014 - 09:33 | 5378937 ZH Snob
ZH Snob's picture

knuckleheads

Sat, 10/25/2014 - 17:59 | 5377189 Atomizer
Atomizer's picture
Hoi Polloi” (1935)
Sat, 10/25/2014 - 18:08 | 5377214 SpanishGoop
SpanishGoop's picture

UK 2.1 billion euro, The Netherlands 0.5 billion.

The Netherlands will reluctantly pay (weak country), UK i am not so sure.

 

Sat, 10/25/2014 - 18:10 | 5377221 hairball48
hairball48's picture

It'll be fun seeing what Nigel Farge has to say about the 2.1B Euros.

Anyone have a link to his response, if he's given one?

Sat, 10/25/2014 - 22:03 | 5377860 I Drink Your Mi...
I Drink Your Milkshake's picture

I think your number's a little off, but never the less here's what he had to say yesterday

http://www.theguardian.com/politics/2014/oct/24/eu-contribution-cameron-...

I know, not that exciting, being all passive aggressive and shit.

Sun, 10/26/2014 - 04:27 | 5378568 SpanishGoop
SpanishGoop's picture

1.7b pounds = ~2.1b euros.

 

Mon, 10/27/2014 - 12:58 | 5382724 I Drink Your Mi...
I Drink Your Milkshake's picture

I stand corrected, thank you!

Sun, 10/26/2014 - 08:38 | 5378816 Ghordius
Ghordius's picture

thanks for the link. note in the article

"Fiorilli said that the commission and Eurostat use 1995 as the benchmark year for calculating the impact of GNI figures. “Member states including Britain insisted on this. It is their decision,” he said."

Sat, 10/25/2014 - 18:13 | 5377226 SpanishGoop
SpanishGoop's picture

Hookers and drugs are not yet included, that's for next years accounting.

So they even have to pay more next year.

 

Sun, 10/26/2014 - 12:25 | 5379384 bid the soldier...
bid the soldiers shoot's picture

 

Well, somebody is going to have to pay it.

How else will Ukraine pay it's $4 billion debt to Russia?  

And that has to be paid before Russian gas transits through Ukraine to the West.

Sat, 10/25/2014 - 18:09 | 5377215 hairball48
hairball48's picture

Who has the popcorn and the beer for this shit show?

Sat, 10/25/2014 - 18:18 | 5377220 Yen Cross
Yen Cross's picture

   Let's stress test the derivatives market ASAP bitchez! I don't care if every bank in Europe has an APPL balance sheet.

When this "Merry-Go-Round" stops, I'll be staying clear of any buildings over 3-4 stories with rooftop patios. ;-)

 The ECB balance sheet is just over 2/3rds of the Fed. balance sheet and the euro got jawboned down to the 1.24 handle. Even with that move all of the E.U macro is getting worse. Just wait until the Sovereign bond market starts to widen back out. (spreads). I mean France and Spain.

  Keep your powder dry folks. The FX markets are trendless right now. They're like a coiled snake.

 Same with the bond market.

Sat, 10/25/2014 - 18:25 | 5377252 kaiserhoff
kaiserhoff's picture

Einstein thought experiment, Yen.

If all currencies are spiraling down the toilet in unison,

could we measure any difference among them?

Sat, 10/25/2014 - 18:37 | 5377278 Yen Cross
Yen Cross's picture

   Yes. Just because one currency is stronger vs another one, doesn't mean it's a stong or weak(macro) currency. That's why we currency traders watch "purchasing power parity" figures to help determine potential future curency pair moves.

   Even minor currencies can perform well vs majors in the crosses. The nzd is a perfect example. If you were trading nzd/usd, you'ld be watching aud/usd and nzd/usd for guidance. The nzd/aud although a smaller market, has had a greater impact on the trade a times, over the last few years.

Sat, 10/25/2014 - 20:42 | 5377605 kaiserhoff
kaiserhoff's picture

Makes my head hurt.  Now I know why I stick with grains and silver;)

Sun, 10/26/2014 - 08:45 | 5378829 Ghordius
Ghordius's picture

"If all currencies are spiraling down the toilet in unison"

that's one leg of the traditional two in a currency war. but note that historically, this kind of show does not go forever. the downward leg is usually followed by an upward leg, which often breaks the weakest

in history, it never happened that all "just flush down and are gone". I don't want to claim that it can't happen, just that usually, something completely different happens as a result

Sat, 10/25/2014 - 18:26 | 5377253 Otto Zitte
Otto Zitte's picture

The Euthanization Union. Set up by you-know-who.

Sat, 10/25/2014 - 18:37 | 5377277 Squid Viscous
Squid Viscous's picture

Fine with me I'm hiding out in US blue chips, massively long!! (no pun intended)

Sat, 10/25/2014 - 19:35 | 5377451 Moe Howard
Moe Howard's picture

Is that a massive US blue chip long in your portfolio, or are you just glad to see me?

Sat, 10/25/2014 - 18:41 | 5377280 Haloween1
Haloween1's picture

They didn't make OSB back in 1939; the glue hadn't been invented.

 

Sat, 10/25/2014 - 19:04 | 5377337 Moe Howard
Moe Howard's picture

I don't think it is OSB although it looks like it at first, I think it is old wood planks reused with paint spots.

Sat, 10/25/2014 - 19:03 | 5377333 Moe Howard
Moe Howard's picture

I'm not one of the twenty-eight cited, thank you very much.

Sat, 10/25/2014 - 19:14 | 5377372 DonutBoy
DonutBoy's picture

Well it's going to be interesting.  The irony is the only country keeping the ECB from pure QE is Germany, and there is no bank with greater leverage than DB. In the US we moved impaired assets to the Fed at 100c on the dollar.  It doesn't seem politically tenable to me that the Germans can allow the ECB to do that.  I don't know how it will be done - but I know two things: 1) DB will not be allowed to fail, 2) Taxpayers will end up with the impaired assets.  The path from here to there is a mystery to me.

Sat, 10/25/2014 - 20:04 | 5377512 SidKhadak
SidKhadak's picture

EBOLA – CIA Project Codename MKNAOMI & Hi-Tech Assassinations

 

In 1948, Henry Kissinger, a 23-year-old American intelligence officer, recruited Nazi expatriates to serve in top positions in American military, aerospace, and biological science and medicine. Twenty years later, he left Harvard’s esteemed faculty and resigned a lucrative position as Nelson Rockefeller’s foreign policy attache’ to become President Nixon’s closest advisor and director of the National Security Council. Seeking alternatives to tactical nuclear weapons to bolster America’s “diplomacy” abroad, the paranoid and egomaniacal Kissinger quickly ordered the Army’s Chief of Staff to requisition $10 million from Congress for the development and testing of EBOLA & AIDS-like viruses. Within ten years, the AIDS and Ebola epidemics erupted coincidentally in the regions of Africa ravaged by CIA military covert operations also ordered by Kissinger.

 

In 1984, Dr. Robert Gallo, of the National Cancer Institute, claimed credit for discovering the AIDS virus. He announced it most likely originated from a monkey virus which spontaneously mutated and naturally jumped species. Dr. Gallo was a biological weapons contractor for the CIA’s top secret “Project: MKNAOMI,” and was paid to produce and test EBOLA, AIDS-like viruses as early as 1970.

 

EBOLA – CIA Project Codename MKNAOMI & Hi-Tech Assassinations

Sat, 10/25/2014 - 20:27 | 5377566 objectivist
objectivist's picture

You have to remember to view this in the proper light.  These days, perception is everything.  So the purpose of the "stress test" is to shore up confidence, nothing more. 

 

When they say "a 14% drop in house prices from current PREDICTIONS", the key is to make the predictions incredibly rosy.  If you predict a 14% increase, then their new worst-case stress test is just housing prices staying the same. 

 

So I expect many more of the banks to pass than the predictions.  The problem with the article is that it assumes a fair stress test, which we will not get. 

Sat, 10/25/2014 - 20:28 | 5377567 objectivist
objectivist's picture

You have to remember to view this in the proper light.  These days, perception is everything.  So the purpose of the "stress test" is to shore up confidence, nothing more. 

 

When they say "a 14% drop in house prices from current PREDICTIONS", the key is to make the predictions incredibly rosy.  If you predict a 14% increase, then their new worst-case stress test is just housing prices staying the same. 

 

So I expect many more of the banks to pass than the predictions.  The problem with the article is that it assumes a fair stress test, which we will not get. 

Sat, 10/25/2014 - 20:35 | 5377589 Karaio
Karaio's picture

Enter a supermarket in France, violate product labels, see where it comes from. 

Do the same in England, Germany, Poland. 

Nothing is produced there except vegetables, cheese, olive oil. 

I hate olive oil, gives me an insane shits. 

Ketchup and mustard, mayonnaise, nothing is produced there, all imported. 

I saw it with my own eyes that the Earth's eat! 

Holland tried the milk of cows and could confer the status, prôceis swear her tits are rigid, nothing that cilicônica sagging. hehe. 

Do not smoke marijuana, but not drugs short, take a phenomenal bender when I find a good company, I have a vague recollection of when I passed through Amsterdam. 

Better stop the conversation here, will my current wife knows where I tell my unkindness. 

hehe.

Sat, 10/25/2014 - 22:47 | 5378053 Tom Green Swedish
Tom Green Swedish's picture

Germany makes some cars and chemicals.  Beyond this europe produces nothing but lazy drug infested whores.

Sun, 10/26/2014 - 05:06 | 5378595 king leon
king leon's picture

Back in the 1970's before the UK joined the EU we had shipyards,steel foundries,car/truck plants,heavy engineering,building/construction,coal mining,agriculture, goods with " MADE IN BRITAIN" on them could be found all over the world, this was before we had North Sea oil/gas. now we have no industry, we are broke, we have no need for skilled labour, we import cheap labour from Eastern block countries that do two jobs, our taxes, along with other EU countries taxes go to Brussels where they are doled out on doomed to fail ponzi schemes.

" For fuck sake Vlad, crank up the T 90's" 

Sat, 10/25/2014 - 22:46 | 5378048 Tom Green Swedish
Tom Green Swedish's picture

I called the eurotrashed disaster over 4 years ago when everybody was saying the USA was in such a big mess (which it is).   Europe is a wasteland with no chance of recovery within the next century.  Stay away from any investment in Europe.

Sat, 10/25/2014 - 23:26 | 5378153 q99x2
q99x2's picture

The larger and more complex the world becomes the smaller the governing entities should be. The top down structures need to be replaced by open source software.  Until there is a way to phase them out, collective sub governments should all have rights to nuclear weapons

Sun, 10/26/2014 - 01:27 | 5378430 Joe A
Joe A's picture

"Holland must fork over much more per capita, for one thing."

And they are already the biggest per capita contributor. Thes extra payments demanded by the EU will not go down well with either the Dutch and the English.

Sun, 10/26/2014 - 07:23 | 5378702 Bernoulli
Bernoulli's picture

Just started reading the ECB stuff. Already on first page of executive summary the first major surprise:

"Overall, the exercise has identified capital shortfalls for 25 banks, totalling €25 billion".

and then

"The comprehensive assessment was broad in scope. The 130 credit institutions included in the exercise (i.e. "the participating banks") had total assets of €22.0 trillion, which accounts for 81.6 % of total banking assets in the SSM"

Ok. Wait a minute. What we are told is that we simply need to add 0.114% to the total assets and then ALL IS FINE?!?!?

WTF?!?

Sun, 10/26/2014 - 07:44 | 5378725 Bernoulli
Bernoulli's picture

On page 17 and 18 of the pdf (page 9 and 10 of the report) we learn that indeed everything has already been fixed, because the "capital shortfall post net capital raised" is only 9.47 € billion: "When all of the capital that has been raised already (net of capital instrument buyback) is offset against the shortfalls, € 9.5 billion remain to be filled, distributed across 13 banks"

And only two banks have a shortfall of more than 1 billion EUR.
- Monte dei Paschi di Siena
- Banco Comercial Portugues

What a surprise. Everybody already knew that these two banks are insolvent.

My conclusion: Already the first table of the aggregate report (page 10) shows that this "stress test" was a complete farce. No need to read any further, ladies and gentlemen.

Sun, 10/26/2014 - 08:04 | 5378755 Bernoulli
Bernoulli's picture

Summary of ECB "comprehensive" AQR:

1) We tested all big banks (if this is good, then Europe is good)

2) More than 6000 experts were involved (wow, this was a gigantic excercise)

3) 25 banks failed (We were really thorough! This was a really really tough test, believe us!), by the way: 2+5=7

4) 25 billion Euros shortfall (SEVEN!)

5) But in between the beginning of the AQR and now, we were prudent and capital was already raised, so only 9.47 billion Euros shortfall remain (we already think of solutions! Very responsible)

6) This remaining shortfall concerns only some few banks (we already assumed they are bankrupt/insolvent/corrupt/dead. One or two tiny "surprise" cases were kept, but on a low level, so that the media have something to talk about)

7) No need to take any action on Monday. All priced in. We got your back. We already fixed the problems (but we were tough on the banks, really. We swear)

European banks are fixed. Thank you for your time.

Yours

Mario D.

 

 

 

Sun, 10/26/2014 - 08:24 | 5378790 THE DORK OF CORK
THE DORK OF CORK's picture

"Someone finish off that inane union before it starts to do real serious harm. Because it will."

Because it will ?                                    there was I thinking the eurosystem destroyed us on entry already (1973,79)                               the damage has been done - we are now all euro roboten.

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