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One Month After Austria's Black Swan Shocker, The ECB Quietly Asks Banks to "Detail Their Exposure"
Nearly a month after the Hype Alpe Adria bad bank Heta Asset Resolution "unexpectedly" imploded under a house of non-GAAP and misreported cards, and which led to only the second European creditor bail-in after Cyprus in what until then was considered the safest European nation, unleashing a herd of black swans which will result in not only the insolvency of one of Austria's provinces, Carinthia, but a week ago led to its first foreign casualty, German Duesseldorfer Hypothekenbank AG which had to be bailed out by the German FDIC-equivalent, the ECB has finally realized it may have a major problem at hand.
So, doing what it does best, a month after the fact and long after the black swans have left the stable so to speak, Mario Draghi's ECB has asked Eurozone banks "to detail their exposure to Austria and provisions they plan to make after the country halted debt repayments by a "bad bank" winding down defunct lender Hypo Alpe Adria," financial sources told Reuters.
From Reuters:
The questionnaire sent to banks and a video conference to discuss the potential fallout underscore the sensitivity of Austria's path-breaking move to invoke new European rules on ensuring creditors, not just taxpayers, fund bailouts.
"They are taking this seriously," one senior executive said of the ECB on the condition he not be identified. The ECB declined to comment.
Bankers say Austria's credibility is on the line after the second move in two years to impose losses on creditors of Hypo, many of whom assumed they had iron-clad backing from the state.
Odd how these things happen: first EURCHF longs "assumed" iron-clad backing from the SNB... until it was yanked from under their feet. Then, creditors in what many saw as the safest European nation "assumed" they would never suffer losses and would be bailed out for ever... until they saw 50% losses in a matter of minutes.
And if you can't trust an Aaa/AA+ rated country, just who can you trust? One can see why the confidence in a system in which risk until recently was illegal, is starting to crack.
For now, however, one can still keep kicking the can, as the creditor losses haven't been fully digested yet.
The debt moratorium gives the FMA time to work out a plan that ensures equal treatment of creditors. It has given no details on what size "haircut" bondholders might expect and has not ruled out sending Heta into insolvency.
The moratorium on more than 11 billion euros in Heta debt has sent shock waves beyond Austria.
Germany's Bundesbank central bank said German banks have around 5.5 billion euros in Heta exposure. Germany's deposit protection fund had to take over property lender Duesseldorfer Hypothekenbank AG after it ran aground over Heta exposure.
The Heta move comes after Austria entered uncharted waters for debt markets last year by wiping out via a special law holders of nearly 900 million euros worth of Hypo subordinated debt despite guarantees from its home province of Carinthia. That triggered lawsuits that the country's Constitutional Court is set to rule on by October.
Some creditors have said they are looking into taking legal steps over the Heta decision, and the FMA is preparing itself for legal action against its decisions.
And hell hath no fury like a bondholder who assumed par recovery is 100% assured, scorned.
Our only question now is that as the flock of Austrian black swans gets tired and prepares to land, just which "assumed" safe financial institution is about to lead to even more creditor scorn.
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show me your panties
What? This type of risk was never modeled in the ECB's highly publicized 'bank stress test'?
<It seems the models only contained parameters that could be passed by (nearly) everyone.>
Stress test... Lol, they were about a real as our 'markets'. But, I know you know this already.
The whole system is worried over the failure of one bank? So what happens when 4,5, 10 banks lock up?
shhhhhhhh......not so loud
Is THIS the first domino? Or maybe not. Or maybe it is, and it is so small that the fist cascade is already in motion, super slo-mo. Or maybe not... Painful to behold, this is. MMM?
The real question is how levered is the 5.5B Euro exposure of the German banks? If this was considered AAA or Aaa, then typically they would lever it and use that to invest in some higher yielding "investments".
I believe it's the sound of first shoe dropping; so to speak. I also believe it's correlated with the present rally in precous metals; a scare for the Bond Freaks diverts capital into the "real flight to quality". We see the 30 Year Bond price cracking today in the US T. market. This will be the first to start selling off and paying into Gold and Silver; as it has no yield and has been bid up solely as a 'flight to quality"; it's only virtue is the lack of a counterparty; you always get your "dollars" back. As soon as the great and wise decide the bear market in metals has bottomed out, money will start flowing out of this instrument and into the metals; which offer the same guarantee; no counterparty. But a much longer history of performance as a holder of wealth.
The real point for us; is not what "the system" is worried about; but the affect on the worry of the Bondholding community. The more failures they see, the more they'll shift into precious metals.
Normally I'd say something about closing barn doors after after the horses escape but it looks like they are discuss the viability of the possibility of perhaps thinking about the need to close the barn doors.....
Central banking clown-car rolls on....
Douche Bank is nervously eyeing their terrible tower of derivatives. Contagion is a bitch.
that monster has to be broken up, asap
nevertheless, this attack on Austrian ratings is typical, and strongly based on the sentiments of financial "operators" flying without a map
dig a bit, and you'll find out that the real possible default of the sovereign kind in this story is not of Austria, but of one of the federated states of it, with a population of half a million: Carinthia
but explaining to some of those blockheads that think they know it all that Austria is a federal republic is, in my experience, already too much. one of them, years ago, explained to me that "federal" means "It Will Be Bailed Out". that was before 2008, btw
All shocks to the Bondholder community, which at this point is a community of fools, willl divert flight capital to precious metals, the real flight to quality. So has it been written, so let it be done. Watch and learn, o Euro Believer. "The Euro"; a con job invented by a French and a Belgian Socialist to avoid the humiliation of serial devaluations of the French Frank; it will fail. Never mind Greece, watch France fall apart.
Oh right, like the ECB really doesn't know the banks are dried up shells...please.
depends how you look at them. the typical US or UK analyst, for example, immediately notices "too many business loans", which is the worst kind of assets for a bank in the US or UK
this is because most of corporate financing in the US or UK is done over corporate bonds (and of course the stock markets)
in the eurozone, we still have an older model. half of our economies is small and medium sized companies. fully private ones. with bank loans
and this makes our banking systems on the continent as different as apples versus oranges, including the "acceptable" leverage rates... or what happens when the financial markets go down
Just keep telling yourseelf that. I suppose that's why the failure of Creditinstalt in 1929 was so insignificant.
"many of whom assumed they had iron-clad backing from the state"
Bankers' equivalent of screaming "But we were PROMISED!!"
Music. Sweet music. Creditanstalt, bitchez.
so long as the banks aren't greek they will be taken care of
Quick, somebody go lock Mario out of the cockpit!!
This is nothing compared to what the "shock" will be when the flock of black swans hits Japan; not a question of if, but when?
www.traderzoo.mobi
I'm enjoying the daily onslaught of financial malfeasance from around the world, surely shows the Corruption & Greed that's been at work for decades. Funny how many of the Banksters never see any jail time. Fucdup world.
Took me a while to figure out what the girl in the red tank top and white shorts looked like in the photo representating this article.
"Bankers say Austrailia's credibility is on the line" Quit reading after that. Wish the girl was would have turned out better than she did.
Why do you think there was finally capitulation on ECB QE?????
Fractional Reserve banking REQUIRES QE. REQUIRES INFLATION.
When you look for the reasons for policies, do not look at the fringes. The fringes may be blamed. But the cause will be in the center standing tall and pretending to be a responible player.
They don't bail-out the fringe. They buy-out the fringe from bankrupcy.
9 inch dick
Bayrische Landesbank has an exposure of 2.4 billion euro. They made an accrual of 1 billion EUR a couple of weeks ago, from the already accrued 500 million EUR. They stated, that they are going to sue Austria for the potential loss.
Like sparks dropping into a powder magazine, it is only a matter of time...