European Banks Now Face Huge Margin Calls As ECB Collateral Crumbles

Tyler Durden's picture


In what could prove to be the most critical unintended consequence of the ECB's LTRO program, we note that as of last Friday the ECB has started to make very sizable margin calls on its credit-extensions to counterparties. While the hope was for any and every piece of lowly collateral to be lodged with the ECB in return for freshly printed money to spend on local government debt, perhaps the expectation of a truly virtuous circle of liquidity lifting all boats forever is crashing on the shores of reality. This 'Deposits Related to Margin Calls' line item on the ECB's balance sheet will likely now become the most-watched 'indicator' of stress as we note the dramatic acceleration from an average well under EUR200 million to well over EUR17 billion since the LTRO began. The rapid deterioration in collateral asset quality is extremely worrisome (GGBs? European financial sub debt? Papandreou's Kebab Shop unsecured 2nd lien notes?) as it forces the banks who took the collateralized loans to come up with more 'precious' cash or assets (unwind existing profitable trades such as sovereign carry, delever further by selling assets, or subordinate more of the capital structure via pledging more assets - to cover these collateral shortfalls) or pay-down the loan in part. This could very quickly become a self-fulfilling vicious circle - especially given the leverage in both the ECB and the already-insolvent banks that took LTRO loans that now back the main Italian, Spanish, and Portuguese sovereign bond markets.



This huge increase in margin calls can only further exacerbate the stigma attached to LTRO-facing banks - and as we noted this morning (somewhat presciently) both the LTRO-Stigma-trade, that we created, and the potential for MtM losses on the carry-trades that LTRO 'cash' was put to work in could indeed start a vicious circle in European financials, just as everyone thought it was safe to dip a toe back in the risk pool.


What should also start to worry the Germans is the fact a 37x levered hedge-fund central bank with EUR3 trillion balance sheet that has extended credit in a 'risk-managed' approach on what appears to be an ever dwindling supply of performing collateral is starting to see dramatic 'gaps' in its asset-liability exposure (but rest assured Bernanke told us that our FX Swaps are safe as houses).


One last point should be noted - the hopes of an LTRO3 or some such are surely now out of the window as clearly banks have run dry of any and all reasonable collateral or can the sovereign bonds purchased using LTRO1 and LTRO2 funds be lodged once again in a rehypothecated miasma circling the drain?

Charts: Bloomberg

(h/t WallStreetMane)

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Wed, 03/07/2012 - 00:53 | 2231100 francis_sawyer
francis_sawyer's picture

and POOF! It's gone!

Wed, 03/07/2012 - 01:22 | 2231151 knukles
knukles's picture

No shit.
Nobody saw this coming?
Whothe fuck figured this shit was gonna work in any case. 

Collateralized term loans mean posting and maintaining enuf collateral that ultimately pays money good in the coin of the realm at end of term. 
Anybody need a lesson in mismatching quality, duration, counterparty and potentially currency risks.
And that doesn't even consider term structure.

Moreover, it assumes the fucking stuff pays.

Wed, 03/07/2012 - 01:24 | 2231154 flacon
flacon's picture

Didn't that fat fuck Greek guy (Vaseline) say just a few days ago that "Default is not a problem?"

Wed, 03/07/2012 - 01:28 | 2231161 prains
prains's picture

i thought a counter party needed at least one person to provide the pressed ham

Wed, 03/07/2012 - 01:30 | 2231166 knukles
knukles's picture

Do the bankers take pork products as collateral?

Wed, 03/07/2012 - 01:34 | 2231182 TruthInSunshine
TruthInSunshine's picture

Central bankster thieves have been taking already been chewed bubble gum as collateral for the last several years, but those days are coming to a close, and they will have no say as the free market actually wakes up and lays the thunderbolt upon their heads.

Wed, 03/07/2012 - 02:47 | 2231291 imaginalis
imaginalis's picture

I hope they dump a load of bullion and crash the price of gold so I can buy another mother load

Wed, 03/07/2012 - 03:41 | 2231345 economics1996
economics1996's picture

Here is the quote of the day for these mother fuckers;

"I got a serious question for you: What the fuck are you doing? This is not shit for you to be messin' with. Are you ready to hear something? I want you to see if this sounds familiar: any time you try a decent crime, you got fifty ways you're gonna fuck up. If you think of twenty-five of them, then you're a genius... and you ain't no genius. You remember who told me that?"

Wed, 03/07/2012 - 05:13 | 2231410 Harlequin001
Harlequin001's picture

I recommend that the ECB buys some gold, just to bolster its collateral a bit...

GLD should do it, then all the CB's could buy the same fucking gold, until that blows up when any one of them ("cos they'll all be Authorised Participants') tries to take it out and then they can all come and pay me a fucking fortune for my real stuff.

One almighty multi-gazillion dollar dodgy gold fund crash. Sounds good eh...

Wed, 03/07/2012 - 08:49 | 2231568 GetZeeGold
GetZeeGold's picture



Wait a minute......we just got done pounding gold down! it back. Embrace the burn of the whipsaw.


Did I hear someone mention something about a margin call?



Wed, 03/07/2012 - 09:19 | 2231646 JPM Hater001
JPM Hater001's picture

I work with brokers and I will never forget how badly they didnt want to call clients in 01 or 08 with a margin call.

This is the mother of all margin calls.

Ring ring.

Wed, 03/07/2012 - 09:28 | 2231661 GetZeeGold
GetZeeGold's picture



Phone's ringing...


Hi......this is Berry......WAZZUP!!!!!!!!!




Wed, 03/07/2012 - 12:05 | 2232294 CEOoftheSOFA
CEOoftheSOFA's picture

My favorite movie, Body Heat!

Wed, 03/07/2012 - 06:01 | 2231448 youngman
youngman's picture

If I was one of those banks that took the LTRO loans......i would go out and buy gold with it....not park it at the ECB.....and in three years you have something to sell...its an asset not a promise to pay or paper.....but I am sure there is a under the table rule that that would be a no no.....

Wed, 03/07/2012 - 06:45 | 2231478 Harlequin001
Harlequin001's picture

It's called a banking license, which requires that they support the economy, which is why they push investors into paper gold and then short it...

Wed, 03/07/2012 - 09:14 | 2231635 disabledvet
disabledvet's picture

it's called "government banking" which means "the bankers are required by the law of your money or your life" to do what they are in fact doing. "with the exception of Greece" of course which is "parking all their money everywhere but Greece" while in the process of "being bailed out." Hmmmmm. I'm sensing a "Big Trouble in Little China" moment coming. Espana...Espana...Espana...

Wed, 03/07/2012 - 02:49 | 2231294 Real Money Wins
Real Money Wins's picture

Not to worry, they aren't done yet. It's just time to change the rules. You know the one where if you or i wanted to borrow cash from a bank to buy stock and the bank says no and you ask why? and they say because it's unsecured paper and not collateral. Well the Central banks can now buy stocks on the open market and as we know the rules don't apply to them, NOW the stock they own will pass as real ownership in real companies an hence real collateral with which they can borrow and lend to their hearts delight. There is nothing like borrowing and lending on someone else's collateral.

Wed, 03/07/2012 - 02:51 | 2231299 Michael
Michael's picture

Damit. Giving away my grad plan to make the privately owned world central banks the bag holders choking themselves to death on their own toxic waste.

Wed, 03/07/2012 - 04:56 | 2231405 Acet
Acet's picture

Unsurprisingly the moth ridden old socks and last winter's snowmen they started accepting as collateral have turned to have a steadilly depreciating value.

Wed, 03/07/2012 - 07:50 | 2231544 Bobbyrib
Bobbyrib's picture

They do seem to be cannibalistic.

I'll be here until 7:15, don't forget to tip your waitress.

Wed, 03/07/2012 - 08:36 | 2231595 spankfish
spankfish's picture

I'm getting divorced from a Greek... they will steal it if its not nailed down, then go get a pry bar.

Wed, 03/07/2012 - 06:51 | 2231485 twotraps
twotraps's picture

Knuckles. I agree and you illustrate a bigger problem.  All that you mention used to mean something...cheapen the process and you cheapen/weaken everything.  Simple.   These extra layers of complications by the Fed and ECB just mask problems we already have rules/laws/mechanisms for.  Instead, its turned into a silly game.  No more.

Wed, 03/07/2012 - 06:57 | 2231494 twotraps
twotraps's picture

Politically driven situations that have no real consequences just continue their course, amending rules along the way.  Look no further than US Govt or any other political group/govt.  The Euro is a purely political construct, now in the hands of politicians.   That part is simple.  I guess it can go on for a while, will it matter that a ride on the bus is $25, coffee $40 and a pint of beer $65?  Even the Ritters could make a fucking mortgage payment at that point.

Wed, 03/07/2012 - 09:17 | 2231643 blindfaith
blindfaith's picture




I see you have been to Australia.  I'd like to know how they get wine to the USA so cheap when a chicken sandwich in a coffee shop is $57.00.

Wed, 03/07/2012 - 07:28 | 2231520 StychoKiller
StychoKiller's picture

They're trying to pull a reverse "Weekend at Bernie's", where they keep trying to hide Bernie, instead of showing him off -- For Pete's sake, DO NOT LOOK UNDER THAT ROCK!

Wed, 03/07/2012 - 08:14 | 2231571 Colombian Gringo
Colombian Gringo's picture

Oh oh, looks like the markets are crumbling. Time to start more wars and distract the sheeple.

Wed, 03/07/2012 - 06:33 | 2231466 disabledvet
disabledvet's picture

"My God, we're all broke" said the Greeks. Then this headline in the Athens Morning Bugle: "Angel investor announces Acropolis 2.0." with this follow up: "discreet real estate tycoon who made his fortune going hog wild in Bezerkistani Bonds announces numerous building projects throughout the entirety of the "heart and soul of democracy itself." discreet indeed...travelling by huge limo and from what we can tell "appearing to be a bearded woman." Who is this mystery man? WHOOOO ISSS HEEE????!!!!

Wed, 03/07/2012 - 01:00 | 2231108 Mr. Fix
Mr. Fix's picture

Is this more "hype",

or are things finally becoming unglued?

Wed, 03/07/2012 - 01:14 | 2231134 francis_sawyer
francis_sawyer's picture

It's never good when the words "rehypothecated" & "miasma" crash together in the same sentence...

Wed, 03/07/2012 - 01:26 | 2231158 knukles
knukles's picture

or "buttfucked"
That's not good either.

Wed, 03/07/2012 - 02:54 | 2231303 phungus_mungus
phungus_mungus's picture

Unless she enjoys being buttfucked... 

Wed, 03/07/2012 - 01:34 | 2231180 Thomas
Thomas's picture

you get "remiasmiated"

Wed, 03/07/2012 - 02:10 | 2231237 mr. mirbach
mr. mirbach's picture

I can't breathe...all this bank stress has triggered miasma...

Wed, 03/07/2012 - 09:13 | 2231634 GetZeeGold
GetZeeGold's picture



Here buddy.....this outta help.



Wed, 03/07/2012 - 02:30 | 2231264 Calmyourself
Calmyourself's picture

Whenever it is possible to change rules or ignore laws it is part of the hype, not that it will not lead to more problems.  With small exceptions everyone is party to the ponzi, that is part of the genius The only thing that brings it down finally will be hunger.

Wed, 03/07/2012 - 07:12 | 2231506 jeff montanye
jeff montanye's picture

or heat and cold.  don't forget them.  thirst too. 

japan is turning off 30% of its electricity (nuclear) this summer with hydrocarbon imports to make up the difference.  japan now has a foreign trade deficit and a sharply contracting economy.  may not buy as many u.s. bonds.  maybe even sell some.

Wed, 03/07/2012 - 09:56 | 2231757 Calmyourself
Calmyourself's picture

My point being physical factors that can not be legislated or lied away.  The physical world and its realities are the only factors not mitigated and covered up by the daily emesis from our propaganda organs and lying leaders.  Our central bankers, politicians and most normal citizens will create any condition, believe any lie, endure hardship based on keeping the ponzi functioning.

We have nothing else and the combination of the PTB's desire to implement whatever plan they have combined with the ennui of the masses is a very dangerous combination.  It will take longer than most think but when it comes it will either be a monumental crash or a daily grind of poverty and propaganda.  After all, we have always been at war with East Asia Winston..

Wed, 03/07/2012 - 13:31 | 2232685 BooMushroom
BooMushroom's picture

Head-in-the-sand government doesn't stop until people start starving to death in the dark, or war, or genocide.

Wed, 03/07/2012 - 02:11 | 2231111 ml8ml8
ml8ml8's picture

Surely this was considered when the Troika modeled out the sov debt of the PIGS and the EZ banking system prior to implementing the Greek rescue package?

Wed, 03/07/2012 - 02:55 | 2231305 phungus_mungus
phungus_mungus's picture

LOL... yeah, right. 

Wed, 03/07/2012 - 01:00 | 2231112 ACP
ACP's picture

Is this the point where everyone just breaks out in hysterical, frightful, insane laughter?

I think so.

Wed, 03/07/2012 - 01:01 | 2231113 lolmao500
lolmao500's picture

Europe is screwed beyond repair now.

What does this mean?

- EU banks are screwed.

- Germany, France, Italy, Portugal, Spain and many others are KABOOOOOOOOOOOM.

- The US too is in big trouble, it needs to find a shitload of money to cover the upcoming losses in Europe... hundreds of billions


Wed, 03/07/2012 - 01:04 | 2231118 ACP
ACP's picture

"Hundreds of billions?"

That's so 1998.

Wed, 03/07/2012 - 01:16 | 2231137 SAT 800
SAT 800's picture

You're not following the script we're already signed up to provide the money. It's no trouble, really, just a few documents and records thereof, need to be created. merely the work of a few moments.

Wed, 03/07/2012 - 07:15 | 2231509 Zero Debt
Zero Debt's picture

All backed by 1 oz of gold

Wed, 03/07/2012 - 10:15 | 2231822 Winston Churchill
Winston Churchill's picture

All to be signed by Linda Green no doubt !

Wed, 03/07/2012 - 01:18 | 2231142 SAT 800
SAT 800's picture

Cheap vacations next year, in new Francs, and new pesetas.

Wed, 03/07/2012 - 01:28 | 2231160 Caviar Emptor
Caviar Emptor's picture this fully interdependent world, one domino will eventually push all the others down. So cheap dollars too. Race to the bottom. Beat ya!

Wed, 03/07/2012 - 01:32 | 2231171 LowProfile
LowProfile's picture

He said NEXT year.


Wed, 03/07/2012 - 02:35 | 2231270 macholatte
macholatte's picture

It's always next year. That's what they said last year and now it's this year.

Today is the tomorrow you worried about yesterday.


Dark Helmet: What the hell am I looking at? When does this happen in the movie?
Colonel Sandurz: Now. You're looking at now, sir. Everything that happens now, is happening now.
Dark Helmet: What happened to then?
Colonel Sandurz: We passed then.
Dark Helmet: When?
Colonel Sandurz: Just now. We're at now now.
Dark Helmet: Go back to then.
Colonel Sandurz: When?
Dark Helmet: Now.
Colonel Sandurz: Now?
Dark Helmet: Now.
Colonel Sandurz: I can't.
Dark Helmet: Why?
Colonel Sandurz: We missed it.
Dark Helmet: When?
Colonel Sandurz: Just now.
Dark Helmet: When will then be now?
Colonel Sandurz: Soon.
Dark Helmet: How soon?


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