All For One, And One For All...

Tyler Durden's picture

Via Peter Tchir of TF Market Advisors

Ignoring the knee-jerk reaction of stocks to rally 4% on the headlines that Dexia will be save and other banks will be recapitalized, it is worth thinking about what this really means and the next logical steps.

For now I will not even focus on the fact that this was from a meeting of Finance Ministers and not heads of state.  I left my "EU Leadership" trading cards at the office, but so far, not many of the big names, who can actually close the deal, have spoken.  I won't even focus on the fact that Dexia has been on the fringe of "contagion" discussion.  Look at articles about "contagion" or "debt crisis" and PIIGS and French Banks and German Banks and Italian Banks show up in nearly every article.  Dexia is discussed less frequently, though ZeroHedge has been on top of it for awhile.  So stocks rose 4% on a plan of a plan to plan a plan for a bank they hadn't heard of until this morning.  Hmmm.

Dexia had 566 Billion Eur of assets at the end of the year.  It currently has a 2 Billion Eur market cap.  How many of these assets are "bad" assets?  Someone is going to have to lend against those bad assets.  Sounds like France and Belgium are up for the job.  Belgium has Debt of 322 Billion Eur and GDP of 340 Billion Eur.  How much of the bad debt can Belgium realistically finance?  How many assets will the "good" bank have?  How much equity capital will it need?  What are the "good" assets?  The bad assets are sovereign loans, residential real estate loans, commercial real estate loans?  Are the good assets just bonds of other banks?  Dexia is not small, and both the "good" bank and "bad" bank are likely to be sizable entities.

Will the assets be transferred at market prices?  Is there a chance the market will be horrified when they realize how big the unmarked losses are?  If they aren't transferred at market, how can the countries that are providing the financing justify that to their citizens?  This may shine a lot on just how bad the bank's books are and that may trigger the contagion everyone bending over backwards to avoid.  Who will want to invest equity in the "good" bank? The management that got the bank into this situation will still be there, so it is unlikely to attract private investors in size.  If we learned anything during our own crisis, it was that "good" assets tend to become "bad" assets a quarter or two down the road as the economy struggles.  Think back to the first time the US proposed MLEC (some form of bad bank).  Half of what was considered good at the time, is what dragged Bear and AIG down.

More importantly, where does this leave France?  France is going to have to bear the brunt of the burden.  Belgium is just too small to save Dexia.  France is big enough, but will the rating agencies just sit around and wait for France to destroy their sovereign wealth by propping up banks?  BNP has a 33 Billion Eur market cap, with assets of almost 2 TRILLION Eur.  I'm guessing some of those assets are loans to Dexia or why would the French government be so eager to get involved?

How much equity would "recapitalize" someone like BNP?  Can the bad assets be shifted to the French government?  Can the share price survive a 50% dilution if that is what was required?  The governments can recapitalize, but how much capital is necessary and how much will it dilute existing shareholders?  How much equity investment can the French government support?  I guess they can support a lot, but I remain convinced that the rating agencies are getting nervous leaving them with an unblemished AAA rating.  They are being so cavalier with sovereign money to protect private money, that something has to give.

But France isn't even the biggest concern.  What about the Italian Banks?  Who will help them?  Italy?  Then who will help Italy?  They just got downgraded by Moody's - a 3 notch downgrade and left on watch.  That is about as bad as a downgrade gets.  Italy, already with debt to GDP above 100%, already on the hook for about 85 Billion Eur of EFSF money is going to have to recapitalize its own banks and take on their bad debt?  Intesa with 18 Billion Eur market cap and 659 Billion Eur of assets is not a small problem for Italy.  If each country is going to back its own banks, won't that just drag down the weakest countries?  If France and Germany come to the rescue, won't that just drag them down?

This is becoming a national problem.  Each country will have to deal with it as best as can be.  If there was already bail-out fatigue regarding sovereigns, how many citizens will want to bail-out banks in other countries?

If no bank in Europe will ever default or having any risk, then it makes sense for MS in particular to rebound, to the extent it was only down on concerns about exposure to European banks.  But how long will that last before people get concerned that the countries cannot afford the bailouts?

I think the markets will be horribly disappointed with this announcement in the end. It will turn out difficult to implement in any case, and will not be enough to stem the fears of contagion.  It will use up enough funds that there will be growing concern of the sovereign crisis spreading, and fears that money that was meant to be spent buying PIIGS bonds in the secondary market is going into equity investments in banks.  Too much money was lent too poorly.  There is not enough money to fix it.  They have to print money or let some real losses be realized.  Tomorrow could be fun again, but I think this euphoric rise in the markets will be short lived again.

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GeneMarchbanks's picture

Meanwhile, here's some consumer advice from your friendly Senator Durbin:

Great, Thanks... I guess

bob_dabolina's picture

How are you the first commentor on every article I read here?

You could not have read, understood, and developed a cogent thought in response to this article in 3 minutes.

Are you hitting refresh every second all day?

Bodhi's picture

TD posts on Twitter when a story new.  Keep an eye on that and you can get the jump on him.

redpill's picture

It's a primary information source used by HFT trading algorithms.


"So stocks rose 4% on a plan of a plan to plan a plan for a bank they hadn't heard of until this morning.  Hmmm."


Great, now people in my office think I'm insane because I started laughing out loud.  That line is classic.

malusDiaz's picture

Do you want to Occupy Wall Street?  Then withdraw 100$ in change and do something about it.


Do you REALLY want to Occupy Wall Street? Then spread the word and withdraw 200$ in change.


AldousHuxley's picture

wall st's latest scam IPO because sheeple didn't learn it the first dotcom bubble.



redpill's picture

Was that them silly stocks in that silly exchange that is still off about 50% from where it was in January of 2000 by chance?

AldousHuxley's picture

Those are the good ones who survived.


The rest like E.Piphany which rose 10000% then crashed are gone.


Obama trying to launch facebook into China, gather database full of personal information of communist regime's slaves I mean citizens, then sell it to Chinese military to pay the US debt off. Throw LinkedIn into the deal with resumes of unemployable Americans with liberal arts degrees so China can study American consumer tastes.


Capitalism American style!


20 years later, we can thank china with this gift: a t-shirt that says "We bought facebook for $10Trillion and all we got is this lousy t-shirt"

fuu's picture

And you were able to read the post, scan the comments, write a comment, and edit the comment all in 9 minutes?

nobusiness's picture

Maybe he is a Hedgefund super computer

bob_dabolina's picture

Yea it took me about 10 minutes. 

Scan comments? Uh, it's the first one.

fuu's picture

Before you edited your time stamp was 6 minutes after the article posted.

GeneMarchbanks's picture

Multiple screens, I read whilst being read to, I'm also over at Jesse's Cafe. And making currency but not during bullshit ramps...

It's an elaborate operation here.

hambone's picture

Bob, Jealous much??? 

And I think the author (and ZH in general) is also jealous that all his logic and fundamentally sound reasoning can't make make the market go down...the market will rage against the light, the truth, the cold hard reality that it's really a pure piece of fraudulent shit.  That inconvient truth aside, time to BTFD???

bob_dabolina's picture

Bleeding with jealousy

So much jealousy I need to innovate new ways to lament it.

GeneMarchbanks's picture

Sadly, he's almost correct.

Idiot Savant's picture

Not jealous, incredulous! For the last three years the market has levitated on "less bad" news and on rumors. It makes no sense.

yabyum's picture

Any port in a storm...any rally on news ( any damn news will do)

catacl1sm's picture

shenanigans. that videos is for aug 12 2011


look at 1:47. same guy talkin to the 'swat'.

john39's picture

that vid is no good... shows rain.  sunny today in STL.  besides, god like productions is itself a psyop run by some military guys to experiement with manipulation on the internet.  sure some posters sometimes post interesting stuff... but there is so much bullshit on that site to make it not worthwhile. 

TN Jed's picture

thx for the info.  Well, back to my hole.

NotApplicable's picture

That's the beauty of any good psyop. Enough truth to attract attention, with enough disinfo to muddy the distinction between the two.

buck4free's picture

Sort of like your comment...

Mr.Sono's picture

"So stocks rose 4% on a plan of a plan to plan a plan"


Sounds like a plan. I wish I was that smart, so that I can be a trader

Money 4 Nothing's picture

Boooyaa! Oh yea baby! Cramers chattin up this phoney rally big time! Yea! Buy Buy buy bye bye bye! Friggin moron, he used to trade, but now he is banned, all part of a settlement with the SEC.

buzzsaw99's picture was a beautiful Belgian day. The smell of waffles and Brussels's sprouts filled the summer air...

[/dr. evil]

The4thStooge's picture

pete! you're alive! i had my doubts there. did you hang on or get sqeezed out?

SmoothCoolSmoke's picture

Added to SPXU and MS puts at the close......  just going to wait until the Bear reels this BS back in....and then some.

alien-IQ's picture

same here. I grabbed some MS Oct 12 puts.

ivana's picture

It's not Hmmmmm's pure HA HA HA

This is becoming a clear joke. Manipulated markets, MSM puppets in perfect harmony, short squeezing sheeps

Racer's picture

They will all have to borrow money to save the other ones...

uh....  hmmm, do you have to be totally brain dead to be in this bankster club?

Mr.Kowalski's picture

Dexia's demise will be messy. Not only will Belgium and possibly France get downgraded for doing this, but the bondholders might have to take a haircut, triggering CDS's written on these. This is far from over. 

ghostfaceinvestah's picture

Gotta figure a France downgrade is pretty much guaranteed due to the guarantees.

What I wonder is, when does Germany get downgraded?  Sooner or later all this shit will fall on them.

alien-IQ's picture does this mean I should break out that 4 year old tab of acid in my freezer or what?

The4thStooge's picture

forex charts look much cooler on acid.

alien-IQ's picture

I may have to add a couple of bottles of Chimay to the mix just to round out the whole Belgium theme.

poor fella's picture

That's where you get your 'alien' IQ!

See 'ya here ~8D

JW n FL's picture



***** "Demonstrators that don't know what they are demonstrating for or against. Law makers that are passing legislation and regulation on things they have no understanding of just for the sake of political grandstanding. People getting paid huge salaries for not producing and taking the company down the drain. A media that seldom reports things correctly or completely.


Ain't America great? We're all idiots" *****

stolen quote.. but it was to good not to share! all credit to the orginal poster of the quote! take a bow!

HD's picture

There is no real money in the market - outflows for months, hedge fund redemptions and retail investors are all but gone. No QE3 (yet), what other than short covering could send the market higher?

Long-John-Silver's picture

The Check is in the mail, really, it is.___________ Of course I'm good for it!__________ Look at the American Stock Market for Pete's sake, they believe me!

Piranhanoia's picture

It must be a cunning plan.

RobotTrader's picture

BBVA:  World record volume today


I knew the "fix was in", I was watching huge block buying in BBVA all day.

It traded world record volume, somebody knew that a bailout for all these PIIGS was underway.

And anybody notice how PM's were totally slaughtered on purpose, within hours of the "Bailout" news?

No doubt, the PigMen were flushing out the weak ones and buying for themselves.

Panafrican Funktron Robot's picture

Example #12,546,782 why you don't buy anything on spec or margin.  Ever.

Panafrican Funktron Robot's picture

So, to summarize, the following are the options:

1.  Print a fuckload of Euros and bail out the banks.

2.  Print a fuckload of US dollars and backdoor bail out the banks.

It seems pretty obvious that #2 is a lot more likely than #1 (though both could definitely occur), but regardless, there's going to be a shitfuckload more currency out there, a near zero nominal growth rate in developed countries, and a deeply negative real growth rate in developed countries.