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Chart Of European Emergency Liquidity Back At Record Levels, And Why Bank Of America Is Long French CDS

Tyler Durden's picture


Yesterday we charted the combined ECB balance sheet which showed that it had hit an all time record of €2.5 trillion, exclusing today's operation (to the stunned surprise of all those who scream that the ECB should be printing more, more, more). Today, we focus exclusively on the various forms of unsecured liquidity measures, such as today's 3 Year LTRO, because as the following chart from Bank of America shows, European emergency liquidity provisioning post today's liquidity bailout brings the total to €873 billion and is just shy of its all time record of €896 billion, a number which we expect will be taken out as soon as the next liquidity provisioning operation. In other words, European liquidity in euro terms, has virtually never been worse. And as today's additional drawdown of Fed swap lines indicates, the USD liquidity crunch is getting worse not better (confirmed by the rapid deterioration in basis swap levels). Perhaps the fact that not only is nothing fixed, but things are about as bad as they have ever been explains why Europe closed blood red across the board, and also why Bank of America continues to push for an outright crash in all risk (and some were doubting our earlier analysis that BAC is outright yearning for a market crash): To wit from Bank of America's Ralf Preusser: "The tender results do not however change either our longer term  cautious outlook on growth, or the periphery. We remain long 5y CDS protection on France, at 210bp (target 300bp, stop loss 175bp)." So let's see: BAC is shorting the EURUSD, which implies they are pushing for a market drop, and now they want French CDS to soar? Who was it that said the megabanks do not want a crash?

And here is what near record liquidity needs look like:

And the same chart from the perspective of Duration: whoosh.

And some further thoughts from BAC:

Banks borrowed €489bn in the ECB’s first 3y tender

Net of changes to other tenders, the banking system borrowed an additional €210bn from the ECB this week (see Table 1). This brings the total amount of liquidity provided to the European banking system to €873bn, still shy of the record €896bn reached in July 2009, after the ECB’s first 1y tender (Chart 1). We also note that only 523 banks used the ECB’s first 3y tender, compared to 1121 banks in 20091. As we highlighted in our preview (see here), this is overall indicative of banks’ reluctance or inability to engage in carry trades to  he same extent as 2009. At the margin this result helps explain the recent performance of front-end peripheral government bonds. However, it is by no means a panacea.


The tender results do not however change either our longer term cautious outlook on growth, or the periphery. We remain long 5y CDS protection on France, at 210bp (target 300bp, stop loss 175bp).


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Wed, 12/21/2011 - 13:21 | 2001487 TruthInSunshine
TruthInSunshine's picture

There's a run on buying insurance policies.

Insurers and re-insurers hang the gone fishin' signs in the windows and pray to Baby Jesus & The Bernank regarding past issued insurance/CDO/CDS/anything else that they derive risk from/have exposure to.

Wed, 12/21/2011 - 13:23 | 2001504 camaro68ss
camaro68ss's picture

Bet the farm, if you lose the FED bails you out. Thats one hell of a deal BofA has!

Wed, 12/21/2011 - 13:43 | 2001592 Ahmeexnal
Ahmeexnal's picture

BOA will go bust.

France will pull out a Grease out of it's ass and even if debt holders are "voluntarily forced" to accept a 50, 60, 70, or even 80% haircut, it will not be considered a CDS event.

Wed, 12/21/2011 - 14:11 | 2001703 s2man
s2man's picture

Yup.  Almost-bankrupt BoA sells insurance on almost-bankrupt France.  France defaults, BoA can't pay, they fold.

What is this I keep hearing about dominoes?

Wed, 12/21/2011 - 15:15 | 2001881 swmnguy
swmnguy's picture

Actually, I'm thinking France defaults, BoA can't pay; everyone along the chain of counterparties takes a percentage hit, no CDS's are triggered; Fed backstops everything with digital dollars that never get out into the general economy; things keep grinding on.  When the rules dictate that TPTB are going to lose, they merely retroactively change all the rules.

Thu, 12/22/2011 - 00:38 | 2003448 ThrivingAdmistC...
ThrivingAdmistCollapse's picture

This is the biggest circle jerk ever.  Everyone is stuffed with the bad debts of everyone else.  Everyone is also insuring everyone else.  This would only end in economic collapse.

Wed, 12/21/2011 - 13:21 | 2001489 virgilcaine
virgilcaine's picture

A global run for Dollars.  Like a giant vacuuum sucking them up (UUP).

Wed, 12/21/2011 - 13:24 | 2001491 GeneMarchbanks
GeneMarchbanks's picture


BAC ain't happy with that Fitch downgrade. When I see this become a trend I'll worry, for now I'll just assume BAC is in panic mode.

Wed, 12/21/2011 - 13:21 | 2001496 YesWeKahn
YesWeKahn's picture

US stocks are still acting like there is no crisis. Just look at those REITs, SPG, PSA, etc near all time high

Wed, 12/21/2011 - 13:31 | 2001537 Jonas Parker
Jonas Parker's picture

Read Ann Barnhardts latest blog, "I'm Calling for a General Financial Market Strike" at If this catches on, there will be a rude awakening...

Wed, 12/21/2011 - 16:01 | 2002035 Zero Govt
Zero Govt's picture

Ann Bernhardt is great. This girl has spunk ....and balls

Calling for investors to pull their money from the markets, hopefully specifically those snake oil merchants and accomplices to white collar thieving at the CFTC and CME Group, is a great call

like her stand to refuse to pay any more tax to the murderous parasites of the US Govt

Give me 2 weeks to pull my positions Ann and I'm in

Wed, 12/21/2011 - 16:03 | 2002041 smlbizman
smlbizman's picture

just waiting for jan 1 for tax reasons...than 100% out....

system d....

Wed, 12/21/2011 - 13:21 | 2001498 Cult_of_Reason
Cult_of_Reason's picture

Hungary to default before Greece?

Forint is plunging like a rock vs EUR and Swiss Franc.

Anyone has an explanations for a sudden Hungarian Forint drop that started fifteen minutes ago?

Wed, 12/21/2011 - 13:30 | 2001529 GeneMarchbanks
GeneMarchbanks's picture

I recall a poster recently said that this would happen. Hungary couldn't reach a deal with the IMF, so maybe this is a political seppuku?

Wed, 12/21/2011 - 13:35 | 2001553 Cult_of_Reason
Cult_of_Reason's picture

Via Dow Jones:

"Reports that the rating company Fitch Ratings has informed Hungary's government it is about to downgrade the country's sovereign rating by two notches to junk grade triggered the move [Forint plunge]."

Wed, 12/21/2011 - 14:25 | 2001738 Dcheeth2
Dcheeth2's picture

I thought Hungary was downgraded to junk some time ago.

Anyway, bodes ill for Austria, as they are heavily in with the Hungarian mortgage market, which is nose-diving to oblivion.

Plus, the leader in Hungary (don't know his name off by heart, and can't be arsed to google) is a right belligerent sod, holding out for pretty much free everything for sod all austerity in return. Bless. 

Wed, 12/21/2011 - 13:24 | 2001509 Jlmadyson
Jlmadyson's picture

Ice9 indeed. Trillion plus more dollars into the system from the ECB and Fed in the last week or two.

Wed, 12/21/2011 - 13:32 | 2001514 hedgeless_horseman
hedgeless_horseman's picture



We remain long 5y CDS protection on France, at 210bp (target 300bp, stop loss 175bp)." So let's see: BAC is shorting the EURUSD, which implies they are pushing for a market drop, and now they want French CDS to soar? Who was it that said the megabanks do not want a crash?


I don't trade French CDS, but neither should Bank of America.

Reinstate Glass-Steagall, for mercy's sake.

Wed, 12/21/2011 - 13:32 | 2001538 GeneMarchbanks
GeneMarchbanks's picture

Desperation. I doubt that the other megabanks are heavy on this trade, unless of course they are informed of the timing of a downgrade which wouldn't surprise me at all.

Wed, 12/21/2011 - 13:42 | 2001586 hedgeless_horseman
hedgeless_horseman's picture



I wonder who has been selling the French CDS?  Probably CALPERS.

Wed, 12/21/2011 - 13:46 | 2001610 GeneMarchbanks
GeneMarchbanks's picture

Heh. It just won't end well, will it?

Wed, 12/21/2011 - 13:30 | 2001525 falak pema
falak pema's picture

...Who was it that said the megabanks do not want a crash?...

Oligarchs on the blood trail, "if I go, at least I won't be alone!"

Now that is crazy TREX thinking at its best! As we all know BAC is desperate and has nothing more to lose. Madoff's whisper still lingers on...."Why just meeeeee?"

Wed, 12/21/2011 - 13:33 | 2001544 FranSix
FranSix's picture

Its blatantly apparent that Wall St. banks are looking at the Euro as some sort of Russian Rouble and that they are ready to pull the carpet out from under the feet of Eurozone banks.  Not  much different than hanging Lehman or MF Global out to dry.

Wed, 12/21/2011 - 13:35 | 2001549 bob_dabolina
bob_dabolina's picture

Looks like the Santa Claus rally is going to be hijacked and Santa's slay flown into the global financial edifice.

I hope Donner and Blitzen aren't Saudi nationals.

Wed, 12/21/2011 - 14:25 | 2001739 willien1derland
willien1derland's picture

+1,000 - Since the passage of NDAA, Santa Claus has published a press release indicating that he will NOT be delivering ANY packages within the US for fear of imprisonment without trial -

Wed, 12/21/2011 - 18:29 | 2002630 chump666
chump666's picture


Wed, 12/21/2011 - 13:37 | 2001563 PulauHantu29
PulauHantu29's picture
U.K. Stores Brace for Most Insolvencies Since 2008 as Sales Weaken: Retail Q

Wed, 12/21/2011 - 13:37 | 2001565 Eireann go Brach
Eireann go Brach's picture

Lets see here...BAC is offering advice as a completely broke and pathetic ward of the state??...Let's ask Lindsay Lohan to run the Betty Ford clinic!

Wed, 12/21/2011 - 13:38 | 2001566 Jlmadyson
Jlmadyson's picture

Looking at BAC the stock could easily hit the 4 handle again. The bank is clearly under stress and will likely try any route to stay up. Talk about a gigantic titanic Lehman moment. It's funny all this stress out of Europe but I certainly would not be surprised if the next failure comes from the US again. Bloody miracle a big EU bank has not bit yet. Hope that swaps chart ain't a tell, tell for BAC.

Wed, 12/21/2011 - 13:41 | 2001587 Dr. Engali
Dr. Engali's picture

I'm betting that BAC won't survive in it's current form through the first half of next year.

Wed, 12/21/2011 - 13:56 | 2001631 firstdivision
firstdivision's picture

The laughable part is I'm sure S&P has already downgraded France internally, but certain powers are threatening them with hearings should they release it.

Too bad for BAC, the CDS will not trigger as there will be a "voluntary" haircut.

Wow, who's selling the 5 year in mass quantities to buy EUR?

Wed, 12/21/2011 - 14:14 | 2001707 trebuchet
trebuchet's picture

LTRO = EU QE... Chart 2 says it all. EU liquidity just changed today, significantly





Wed, 12/21/2011 - 14:21 | 2001721 virgilcaine
virgilcaine's picture

  It's Going to be hard times in One Bankster town Charlotte, NC.  Bac has a mkt value of a debit fee.

The Wall St of the South.. he he 

Wed, 12/21/2011 - 14:23 | 2001732 willien1derland
willien1derland's picture


WSJ - Hungarian Forint Falls Sharply Vs Euro, Swiss Franc

Wed, 12/21/2011 - 15:14 | 2001882 Yen Cross
Yen Cross's picture

 Wait!!!!  I can't swim!

Wed, 12/21/2011 - 15:17 | 2001889 dr.charlemagne
dr.charlemagne's picture

Is the theory that the CDS will actually pay out after a "credit event"?

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