Credit Suisse Buries European Banks, Sees Deutsche Bank And 65 Other Bank Failing Latest Stress Test, €400 Billion Capital Shortfall

Tyler Durden's picture

A day after Credit Suisse killed the Chinese bank sector saying that the equity of virtually the entire space may be worthless if NPLs double, as they expect they will to about 10%, the Swiss bank proceeds to kill European banks next. Based on the latest farce out of Europe in the form of the third stress test, which is supposed to restore some confidence, it appears that what it will do is simply accelerate the flight out of everything bank related, but certainly out of anything RBS, Deutsche Bank, BNP, SocGen and Barclays related. To wit: "In our estimation of what could be the “new EBA stress test” there would be 66 failures, with RBS, Deutsche Bank, and BNP needing the most capital – at €19bn, €14bn and €14bn respectively. Among the banks with the highest capital shortfalls, SocGen and Barclays would need roughly €13bn with Unicredit and Commerzbank respectively at €12bn and €11bn. In the figure below we present the stated results. We note RBS appears to be the most vulnerable although the company has said that the methodology, especially the calculation of trading income, is especially harsh for them, negatively impacting the results by c.80bps." Oops. Perhaps it is not too late for the EBA to back out of this latest process and say they were only kidding. And it gets even worse: "We present in this section an overview of the analysis which we published in our report ‘The lost decade’ – 15-Sep 2011. One of our conclusions was that the overall European banking sector is facing a €400bn capital shortfall which compares to a current market cap of €541bn." Said otherwise, we can now see why the FT reported yesterday that banks will be forced to go ahead and proceed with asset firesales: the mere thought of European banks raising new cash amounting to 75% of the entire industry's market cap, is beyond ridiculous. So good luck with those sales: just remember - he who sells first, sells best.

And the scary charts:

1. Capital Shortfalls under Stress Test part Trois (9% min. CET1 ratio)

2. The same in details:

On the €400 billion shortfall:

We present in this section an overview of the analysis which we published in our report ‘The lost decade’ – 15-Sep 2011. One of our conclusions was that the overall European banking sector is facing a €400bn capital shortfall which compares to a current market cap of €541bn.

The table below details the breakdown of our estimated capital shortfall.

Figure 6: European banks – Capital deficit in CS ‘accelerated sovereign shock

As highlighted in Figure 6, this number includes the following;

€165bn of capital necessary comply with Basel 3 requirements. We base our analysis on 2012E which might appear to be conservative given the fact that banks are expected to by compliant by 2019E including the phase-in period. We think though that higher capital requirements are actually driven by the credit market as opposed to the Basel III timeline.

Figure 7 shows both the 2012E Basel 3 fully loaded ratios for the European banks before and after our accelerated sovereign shock scenario. Our base case shows a sector average ratio of 8.6% which declines to 6.2% post losses and higher funding costs.

€213bn of losses under our “accelerated sovereign shock, including: (i) €52bn of incremental losses on credit market assets (we estimated €400bn credit market assets exposures currently at European banks); (ii) €124bn of losses on sovereign debt holding based on our “accelerated sovereign shock”; (iii) €37bn equivalent to one year of higher funding costs, which is equivalent to 26% of our 2012E estimates PBT for the sector (details by banks are shown Figure 8). We believe we are witnessing a structural change in the level of banks funding costs. Weaker sovereigns’ balance sheet means, at least partly, a removal of the ‘too-big-to-fail’ guarantee which will inevitably be reflected in funding markets.

And so on.


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nope-1004's picture

"Capital shortfall" is a nice way of putting it.

Truth is, they're all insolvent.  Marked to a market fantasy of excessive credit backed by nothing. 


Pladizow's picture

This is like being forced to watch a horror movie that never ends!

Comay Mierda's picture

where is credit suisse on this list? lol

Randall Cabot's picture
  Aversion therapy is a form of psychological treatment in which the patient is exposed to a stimulus while simultaneously being subjected to some form of discomfort. This conditioning is intended to cause the patient to associate the stimulus with unpleasant sensations in order to stop the specific behavior.
Zero Debt's picture

Yeah, my popcorn's gone bad already

disabledvet's picture

Again it's called "marked to government." and if that's fantasy I've got a predator drone to fly over you.

daxtonbrown's picture

"marked to government", I'm going to steal that for an article.

450 billion Euros almost sounds like real money. Maybe The Bernank can help.

Zero Debt's picture

No biggie, at today's EURUSD 450 Billion Euro is nominally like the entire US M2 in 1970's.


Bob's picture

Exactly.  And, to that extent, there's a whole lotta collateral backing: The hides of their hapless populations in perpetuity. 

After all the bankers have done for us, it seems only fair.

eureka's picture

Yeah, bus so are US banks - and - EU zone has $30+ TRILLION GDP - so this is chump change - only about the cost of a new US fleet of F-135s

Believe me - EU banks will take some haircuts and EU and EUR will prevail - while Romney becomes Potus and spends US to death on more PentaGun hardware - all for the "defense" - ehm, war contractors - and the buy-in minions, i.e. the soldiers and their co-dependent on empire and centralization families  - and the vacarious dignity of the US sheeple who always loves a good war in lieu of financial and moral independence  - and any real and substantive personal power over their lives.

Of course - there could be a Renaissance - but probably, first a little more suffering and stupidity is needed to generate the wake-up.

Narrow Ledge's picture

Geithner on board with recap plan so you have to feel good getting long some Euro banks SX7P !!  “The plan has the right elements,” U.S. Treasury Secretary Timothy F. Geithner told reporters in Paris. 

Village Smithy's picture

Didn't Ivy Zelman when she was at Credit Suisse bury the sub-prime market? We need to take away their shovels so they will stop digging.  

vote_libertarian_party's picture

WHHHHIIIIIRRRRRRRR goes the priners.

Bansters-in-my- feces's picture

Rally.!...Rally... Raw,raw raw.....

+400 point up day for the markets tommorow.

tekhneek's picture

What are those called?

Oh yeah.

Ponzi schemes.

disabledvet's picture

Yu forget: Charles Ponzi got arrested. Now how 'bout u and I do something illegal.

Big Jim's picture

The question is at which speed all this happens. For months, politicians succeeded to buy time by "kicking the can". But when they reach the see, what happens: For example:

- If one European bank announces bankruped, and faces a bank run, how fast the next bank gets in the same trouble?

- More interesting: at which pace a Swiss or Singapore or Brasli bank could be also see the same?

Cat On A Ledge's picture

Can't speak for the others, but as for Singapore banks one needn't worry. Since the GIC (Government Investment Corporation) has its fingers in all 3 listed local banks via its investment arm, Temasek Holdings, which in turn is run by public scholars and ruling party affiliates, these banks are essentially 'TETF' - Too Embarrassing To Fail (tm).

Hence, they've always been a bargain hunter's best friends!

  P.S. This rule also generally applies to most Asian countries (see recent PRoC bank rescue).

Market Efficiency Romantic's picture

Interestingly, I think the counterparty domino risk discussion has at a very fast pace got those exotic banks involved. If you are first-order credit protected and realize the systemic flaw in your protection you hedge against this risk by buying protection to it (aka the issuer of the protection you own) in a different not correlated market.

We need those Marsian bankers come down and talk to us, in the end game, they are the only uncorrelated ones.

Schmuck Raker's picture

"Would you like to pay for that with cash, or credit, Mr. Bernanke?"

Ctrl-Alt-Defeat's picture

OT: Slovakia says yes :(

wombats's picture

Just a distraction to take everyone's focus away from BofA, JPM, GS.

kito's picture

takes one to know one

YesWeKahn's picture

At least we know how much to print.Is that all?

topcallingtroll's picture





andybev01's picture



junkyardjack's picture

This will be great for the markets when all the banks pass the "Stress test" with flying colors again.  Markets you were wrong again, the government will tell you what prices should be silly

falak pema's picture

would be nice to have RM comment this. According to this article the three french banks need 30 billion Euros, 40 billion USD to meet this criteria. But, is this AFTER the Greek write down of before. And at what level of Greek write down 20%? 50%? 60%? 75%? And what contagion factor for Portugal and Spain?

All this stays VERY OPAQUE...STRESS TEST A LA DEXIA? LOL! That is reality.




Problem Is's picture

And this is exactly why Timmah always recommends keeping the details of TBTF stress tests confidential...

Timmah Jeethner on Euro-Bank Stress Tests:

"Only say pass, you Euro-Trash banker idiots..."

dracos_ghost's picture

And this just in, US Fed sells 400B EU equivalent of debt to Treasury at negative rate effectively dumping the EU contagion on the US taxpayer. </sarcasm>

sdmjake's picture

Easier there, Ghost...What ZH'ers deride with 'Sarc' tags, Bankers implement as policy.

glokk26L's picture

So, in other words, of course the Dow will go up on the bad news.

Hope (ium) is a powerful drug, I figure OD's will happen at some point as you can only have so much before the smile splits the face wide open.

Cat On A Ledge's picture

Thanks ZH. Good to know that the seller of my put warrants (BNP) is also the most vulnerable to a bank run (CDs). How reassuring.

Uncle Sam's picture

Credit Suisse is conveniently leaving out the banks' exposure to CDS liability.

Replace every use of the word 'billions' with 'trillions'.

There, fixed it.

falak pema's picture

OT : A woman to watch. She is a woman who hates regulatory capture.


The Woman Who Knew Too Much

Millions of Americans hoped President Obama would nominate Elizabeth Warren to head the consumer financial watchdog agency she had created. Instead, she was pushed aside. As Warren kicks off her run for Scott Brown’s Senate seat in Massachusetts, Suzanna Andrews charts the Harvard professor’s emergence as a champion of the beleaguered middle class, and her fight against a powerful alliance of bankers, lobbyists, and politicians.

...That's how you ensure the right person does not get the right job...and you satisfy the Oligarchical lobby, instead the consumer. O'bammy the man who knows how to suck the Oligarch's lolly pop.

And....she is gunning for the bankstas!

twotraps's picture

Someone please sort me out here....All the banks participate to some extent in the current system.   The current system begs the banks to take huge risk.  Credit Suisse, unless they can somehow prove they are truly above it all are just as bad as the rest!!??  WTF.


If the govt prevents huge losses from being realized, then do they run the risk of ruining the entire game?  Do their actions cheapen the entire system?  If there is no Out of Bounds, what the fuck is the 'value' of anything?  Am I missing something?  Can debts of this size truly be handled in isolation?  Is Soc Gen the only group that can run a profitable bank in france?  Let their asses fail, have a fucking yard sale, get what you can get and let someone else in to start ripping people off fair and square.

web bot's picture

For the record, I don't take meds, hear voices in my head or am delusional. I hold an MBA from one of the top 10 Bschools in the world and for the most part, am a sane person. So hear goes...

I just had lunch with a friend. She is Aboriginal and does fasting and sweat lodges as part of her tradition.

She told me that she has a spiritual Elder. This is akin to a Spiritual Director in the Catholic sense. This woman has an ability to see into the future. She spoke of a great  wave washing over parts of Asia that would kill many, many lives. She said 3 days before the 2005 Tsunami.

My friend told me that her spiritual Elder, who is 80 years old, who does not have a computer, who does not understand the Internet told her the following statement, based on a vision she recently had:

"Within the next 6 weeks, the money system of the world will collapse and end. It will not be the end of the world, but it will be the end of the world money system and how we are use to living our lives."

Do with this as you wish. Not investment advice.

twotraps's picture

ok.  So what are some possible scenarios there?  What would happen first?  A bit of panic I would imagine, some testing of the social fabric (depending on the speed/severity of an event unfolding), some emergency structure would have to be in place to keep some sense of normalcy until a longer term sollution could be put in place and or some way of reconciling what we had.  Not sure this is going to do anyone any good with a lot of paper assets.   poof.  The great equalizer?  No one has to pay their mortgage?  Free houses?  

twotraps's picture

Thanksgiving Weekend Bank Holiday??   Turn in your old notes for ready-to-go new notes....50% off!!

web bot's picture

Government immediately nationalizes banks, takes over food distribution with possible nationalization of food distribution and food companies. Outlawing of PM ownership. Should social unrest take hold, then Martial Law, Curfews. You better be friends with your neighbors.

Web bot technology talks about the collapse emanating within the global derivatives market. My "guess" is a run on PMs where contracts are 100:1 for physical is the catalyst. I could be wrong on this, I'm not the web bot guy and am not associated with them.

Fíréan's picture

Dear web bot , to quote a previous post which i read here some time ago  :


. . . reminds me of several other famous people - "They Say", "Santa Claus" and "Micky Mouse". All very real for people over 12 years old, who fall under the mental health act.

Give your head a good stiff bang and come to your senses.



I'll be curious to see if the dream comes true.

web bot's picture

I hope you have a leprechaun and his pot of gold for what's coming...

Market Efficiency Romantic's picture

Sure, such a firesale will come at a steep discount. More importantly, I was wondering which group of entities would have the financial power to even at discounts make the deleveraging a success on an insdustry-level. HFs are neither liquid not financially powerful enough to cover a major stake besiedes some raisins. Even the BlackRocks, KKRs et al. won't manage the size of the total operation in my opinion.

Only so I don't get carried away, to estimate the amount to deleverage. Assuming EU banks need about an 80-100% capital increase, if they choose to deleverage instead, they would need to cut have their risk-weighted balance sheet, which not only exceeds EU nations's GDP, but certainly the firepower of potential buyers.

Another thought: Much of the assets sitting on banks' balance sheets work with size only. You can play that stuff under a 2T Deutsche Bank business model, but not under business models of alternative investment Cos with inferior infrastructure and higher return expectations.

So, overall, I think banks know that. The entire deleveraging argument is a black mailing operation, threatening political decision makers to cut the function, eminently importortant to our economies, availability of credit and liquidity.

twotraps's picture

so do you expect a political outcome first, with the economic intent of maintaining as much of the status quo as possible?

twotraps's picture

Seriously, if cash stops flowing, is it worthless?  Since a high percentage of people are check to check, the pressure would be immediate.  Do the banks allow direct payment of bills if you have resources or do the lights and heat just go off?  

malek's picture

Luckily UBS and Credit Suisse themselves are not "European" banks... :D

Nottingham's picture

If all this bank equity, money, wealth, etc. is wiped out....then who has $2,000 to pay for gold/oz.???