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Dexia Bailout On Verge Of Collapse, Threatens To Take France AAA Rating Down With It
Having followed the fortunes of the beleaguered Belgian bank from before it appeared on anyone's worksheets, we are hardly surprised that the EU Commission charged with confirming the good-bank / bad-bank restructuring is concerned at the deal that Belgium has with the French (and Luxembourg) government to backstop/finance Dexia's debt. Belgium's De Standaard (and two other European newspapers) today suggests the Belgians fear the EUR90bn deal is 'not feasible' as it stands (with a Belgium 60.5%, France 36.5%, and Luxembourg 3% weighting). Given the change in market conditions the commission, according to the article, is concerned at the ability of each country to finance its respective guarantee (most obviously Belgium) and therefore can renegotiate the October bailout deal. Belgian FinMin Reynders would not confirm the renegotiations but was evidently waiting on the commission's 'comments or additions'. The French are obviously not-amused and of course, any increase in the size of France's guarantee will further impact its ability to maintain the much-vaunted AAA rating.
The initial bailout deal was profitably traded via our suggestion of DEX-Belgium compression and as the orange oval shows risk was very rapidly transferred from DEXCL (Dexia's CDS level compressed - green arrow) onto the balance sheet of Belgium (red arrow showing how Belgium CDS underperformed France CDS).
The last week or two has seen systemic concerns creep into all of the spreads involved - though notably the spread between Belgium and France has been relatively stable around 110bps. Idiosyncratically DEXCL has decompressed notably as chatter about the deal's collapse grows louder.
We suspect that there will be some renegotation that pushes more pain to bondholders in return for France shouldering more of the burden and so a DEXCL decompression vs Belgium-France compression trade makes some sense (as a risk-transfer trade) but cost of carry is high. Perhaps the simplest way (and cheapest) is outright short France credit.
From De Standaard: Dexia Rescue Plan Is Not Feasible (Via Google Translate)
BRUSSELS - Belgium asks France to renegotiate the bailout Dexia Holding, also on the distribution of the state guarantee of 90 billion. The euro crisis plan unfeasible.From our editors coup de théâtre in the Dexia case. While President Jean-Luc Dehaene again yesterday for the special Dexia commission appeared to a clarification of the trap and the dismantling of Dexia shows an important part of the Belgian-French agreement of October 9 obsolete. In particular, the rescue plan that Belgium France and Luxembourg have agreed in early October for Dexia Holding (the rest couch, red), stands on the slope. And this includes the much-discussed state guarantee of 90 billion to finance the remaining banks - especially the more massive historical bond portfolio and the unsold subsidiaries of Dexia behind. Belgium dropped by France to convince the majority (60.5 percent) of the financing of the remaining bank Dexia is a Belgian guarantee to cover.
This guarantee, Dexia to enable the next year to 54 billion euros from the Belgian bond market to pick up. This would come in direct competition with Belgium itself, that money needs to get his debt and deficit financing. The Belgian bond market is quickly drying up. This makes it impossible for the coming years tens of billions of Dexia to retrieve. Specialists estimate that for Dexia 'only' room for 20 to 25 billion euros from the Market. Since the agreement Dexia Belgium mistrust of financial markets, allowing long-term rates has increased dramatically: the beginning of October is 3.6 percent in Belgium paid ten-year loan, now it is 4.9 percent. And that has consequences for the rest of the financing bank.
"Dexia becomes intolerable as it is such high interest rates on the market to pay, insiders warn. French resort Belgium, France and the European Commission has therefore already stated that the bailout Dexia Holding need re-negotiation. As a possible way a new agreement in which the French, backed by Belgium, one additional share of the funding to take on. Much time is not. For the euro crisis threatens not only Belgium in need of money to bring the whole bailout for Dexia falters. Dexia Holding should not only pay high long-term market, it needs also a costly fee for the state guarantee.
Total (financing) costs of the massive bond portfolio in the rest thereby threaten the bank proceeds to beat. Allowing the remaining banks are structurally unprofitable. All parties involved are treated with the hands in the hair. "What now?" The remaining bank fail let go is not an option, it reads. The consequences for Dexia Bank Belgium (DBB) could not be foreseen. "The Belgian state bank to the rest Dexia bank an overdraft - no guarantees, so - given 20 to 25 billion euros, and then that money completely lost."
The only solution that Belgium sees that France itself the majority of The money the rest of Dexia bank needs from the French bond market gets. Belgium would be the part that France collects on behalf of our country, with guarantees covering. But the French are not designed for jumping. They believe that Belgium commits perjury. Paris itself is under great pressure. The credit agency Moody's yesterday put pressure on France once again by openly to question the sustainability of the French AAA credit rating. In addition, in the spring French presidential elections. Dexia Belgium ruin.
It seems that Belgium is 'pulling a Greece' - knowing that it has all the leverage and France has much larger exposure to the problem - once again the unintended consequence of capitalism wiothout failure is writ large.
Chart: Bloomberg
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This whole thing is really moving a warp speed. I can only see the stern of the Titanic now...
Banks cut 200,000 jobs and still in deep trouble. They need ZIPP: Zero Institutional Personnel Policy.
ES selling off...looks like small triple top from late oct to about 11/17...ES 1193 close from 8/4 taken out and no obvious significant support...should revisit and take out 1110ish imho...
I'm with you on that scenario, Caerus. Or skip the revisit and just go ahead and take out 1110.
ES 1110ish is quite significant i think...1110 provided support from jan to oct of 04-05, it was sliced through in sept 08 and then provided support after the fed initiated rebound from jan to sept of 10...it was tested again in august of this year and was the bottom of the oct bounce...
edit: it could also be argued that ES 1110 would complete the right shoulder of the h&s pattern that began in february of 2010
essentially the market should be shifting lower after the Aug selloff...The rally on Oct and the new highs, it was a false break-out. We should break the Aug lows. At that point, depending how terrible everything is, central banks will go mental. But can they stave off a complete liquidation trade? They will send oil higher which will completely wreak the EZ/Asia. So, yeah very doomy.
Well hold on now! Kudlow had Dick Bove on and they told me that bad stuff in Europe is good for the USA. They were pretty dang sure of it!
Ron Paul debate highlights 11-22-11
http://www.youtube.com/watch?v=eZAW2spbZys
Time for Slayers South of Heaven http://www.youtube.com/watch?v=9elPTzMhR7o&feature=related
Yes that's right the market is heading south...gonna get bloody.
raining blood
Is popcorn fattening? Cause if it is, I'm gonna be HUGE. (I already am in Japan).
Bon voyage!
Use 8 pieces of kleenex to open a doorknob and place a pink napkin on genitals. Got it!
every trader in the world reads ZH...from wires:
"The EUR/USD traded up to 1.3532 in early Asia on frustrated short covering, but the price action reversed following a Zero Hedge report saying that the Dexia bailout deal might have to be adjusted and France"s Triple A rating could be jeopardized if that was the case."
France's "much-vaunted AAA rating" has zero predictive value. Why do otherwise rational men and women continue to be mesmerised by the junk concept of CRA ratings in the face of an avalanche of evidence that they are worse than useless? It's a damn psychological affliction. Paging CogDis.
THe problem is that there are too many bankers now. They are very scared and have always been paranoid. They invented credit, which was to show that they don't trust anybody and that people should have to pay for what they work for. The banker is a strange creature indeed.
Everyone chill out, it's all good...DICK said so...
http://www.cnbc.com/id/45408945
Last time I heard, Belgium has to get around 80 billion from the markets next year. With Dexia's guarantee of about 65 billion on top, this almost doubles the amount Belgium has to borrow next year in the case of a severe crisis (and hence Dexia requiring the full guaranteed amount). Since yesterday the Belgian 10 year has passed 5%, this becomes extremely difficult to do. Furthermore, don't forget that Belgium STILL does not have an official government, everything that is decided around Dexia is still done by the old "caretaker" government, with supposedly limited powers, no mandate from the voters, and little political consequences for the politicians involved. Furthermore, the second largest political party, which now leads the creation of the new government, is extremely socialist, and want to get their extra money by squeezing everyone and everything that pays taxes or owns something of value, not by saving in the (already ridiculous) expenses of this little country.
Last but not least, there are 10 million Belgians. 65 billion in guarantees comes down to 6500 euro per Belgian, or around 26K euro per family, just to keep ONE bank from falling over. For me this is a year's worth of salary. And don't forget that this is not the only Belgian bank in trouble. Look at the price of the KBC stock for instance, which is similar in size to Dexia...
So Luxembourg is on the (Dexia) hook with 3% of something like € 90bln ?
My gosh, they only have 480K peoples to slave that off. And 200K of those are foreighners (bankers etc) - intransient and very busy
constructing these neat financials so dear to us all. Them foreighners will be gone by the time SHTF. Impossible for
Lux to shoulder this load!
Euro-zone economies
Latitude
http://www.economist.com/blogs/dailychart/2011/11/euro-zone-economies?fs...
Fuck Black Friday 2011 and 2012 and 2013......................................
http://www.reuters.com/article/2011/11/22/us-bankofamerica-idUSTRE7AL0AV...
(Reuters) - U.S. regulators have informed Bank of America's board that the company could face public enforcement action if they are not satisfied with recent steps taken to strengthen the bank
Whoo Hoo. I guess needs to get an MBA to screw everyone over form an ivy league school.
Glass Steagal anyone.
I was thinking of getting an MBA. What does that take, a week or two?
If Belgium can't afford to pay for a partial bailout of Dexia how on earth is it going to bail out ING, or KBC, or pay its own debt?
It can't... Europe will have to via ECB/IMF/EFSF/ESM/PEZ-Dispensers/beads & shells/pieces of belly-button-fuzz
In other news, MSM just reported on Mitney-Gingrich (sp?) tie in debate. Of course, no mention of Paul.
didn't you attend Mass at Saint PAul's for honouring demise of Paulawrence of Libertarian pride?
ES getting a morning glory.
Pump before the dump?
wot? ... I thought dis woz like ... when aways? ... so ... eets back? ... WTF? ... not here ... here ... not here ... here ...
dis sux big asses 4real bro ... maybe it gones like 2morro ... or somfing? ... dat 4real fucking teedeus bro
ZH is spoiling Sarkozy's relection party; but his opposition is so bad he could win inspite of RM and ZH saying : French banks are like Maginot Line to the Market's Guderian tanks.