European Black Swan Sighted

Tyler Durden's picture

While everyone's attention was focused intently on peripheral European bond spreads last week and the incessant call for ECB intervention, a dramatic (and contagiously panic-worthy) move occurred in the European Investment Bank (EIB) bonds.

For those unfamiliar, the EIB is the EU's IMF-equivalent and is the largest international non-sovereign lender and borrower. Technically, it is defined as "the European Union's long-term lending institution established in 1958 under the Treaty of Rome. It supports the EU’s priority objectives, especially European integration and the development of economically weak regions."

5Y Euro-denominated AAA-rated EIB bond spreads crashed wider, blowing past the 2009 record highs and clearly indicating that European capital flight is in full swing.

The IMF-like entity, supported by a small capital base of deposits backed by promises of huge capital injections by sovereign nations, has massive exposure across Europe (and elsewhere). EUR382.4bn of senior unsecured debt and (according to Bloomberg - chart below), EUR2.5bn of deposits (admittedly backed by supposed promises to make whole loan commitments) does not make for a sound AAA-rated firm in our humble opinion.

Clearly investors think the same this week and are starting to worry about the same self-referencing, self-supporting house-of-cards that caused the EFSF to be written off as unworkable.

It is clear that the contagion is spreading as Bund yields start to underperform (no capital flight to safety within the Euro-zone) and furthermore, as the chart above shows, the stress on the EFSF has now spread to the EIB's publicly tradable debt.

It is no wonder given the size of their loan portfolio and who it is being lent to:

Spain, Italy, France, Portugal, and Greece all in the Top 10 with simply enormous outstanding debts relative to the capital in-house to cover potential losses (let alone any MtM or economic risk budgeting).

The debts outstanding, much as with any major investment bank, are denominated in multiple currencies and the yield curves below show the differentiation of those curves by major currency.

The next few months/quarters/years has huge supply from the EIB as it rolls its major debt load and while it maintains its AAA-rating - and therefore appears very attractive from a carry-per-regulatory-risk-capital perspective, we suspect the professionals are already unwinding their exposure very rapidly.

The next few months have over EUR20bn in maturities (and EUR6bn in interest payments) and so we will get plenty of opportunities to judge how new issue premiums will adjust secondary markets.

The following chart (of the USD-denominated EIB debt yields) should be enough to prove that both systemically (yield curve shift higher) and idiosyncratically (potentially speculative-driven negative bets as bear flattening is occurring) the AAA-rated EIB is facing some significant stress and should it need to make capital calls (to maintain its AAA-rating), is Spain, Italy, France, and Greece going to step up to their promises...

There are no CDS trading on this reference entity (yet) but given the still-relatively-tight nature of the bond spreads, we suspect specialness is not an issue and borrow is possible. The 2s5s bear-flattener looks the lowest vol trade but at such low costs of carry, outright is perhaps just as attractive on a reduced size trade. The compression in the EFSF-EIB trade also looks attractive.

Charts: Bloomberg

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LawsofPhysics's picture

national socialist, christian conservative, potato, potaato.  Conservatives support bailouts (especially when their stock is involved), up is now down, left is right, ignorance is strength, knowledge is power, war is peace...

The label you give what is coming will be irrelevant.

bank guy in Brussels's picture

There is a story that in they asked famous progressive American 1920s - 1930s politician Huey Long of Louisiana, if America could possibly become fascist.

His reply is said to have been, Sure, except that in the US it will be called 'anti-fascism' (or 'Americanism', in some versions of the story).

Iwanttoknow's picture

Thank you for quoting Huey long,a great patriot.As you know that he was killed by a Khazar physician.

Socratic Dog's picture

We've had it for about 75 years now, some would say.

AldousHuxley's picture

This is what your government thinks about your constitutional rights of free speech: NYPD knee on your neck.


If you want a picture of the future, imagine a boot stamping on a human face — forever. - George Orwell.


This is what your government with thumbs up from supreme court thinks about your civil rights as an American citizen: they put your wife and children in concentration camps while you are in the US military fighting for the elites.

Carlyle Groupie's picture

"showing up the "Bloomberg's" summer homes"

Hummmm. How should I accessorize my evening wear darling? Oh yes, I chose you! (bloomberg edition)

Dr. No's picture

I believe Zuccotti Park is privatly owned.  If this is the case, and the owners allowed the protesting, then the police overstepped their bounds.  If the owners felt the protesters were trespessing, then the protesters should be thrown out.  Free speech does not apply here.  It is about property rights.

Hansel's picture

Zucotti Park is a "privately-owned public space."  From wikipedia:

The park, formerly called Liberty Plaza Park, was created in 1968 by Pittsburgh based United States Steel in return for a height bonus for an adjacent building at the time of its construction.

It's not exactly a private park.

bob_dabolina's picture

Zucotti Park is owned by Brookfield Properties

Who was just hired as an attorney for Brookfield Properties? Joe Bidens Son

Who sits on the board of Brookfield Properties? Michael Bloombergs live in girlfriend

Now guess what company just received some of the last Obama stimulus $$$? Thaaattt''sss right Brookfield Properties

Carlyle Groupie's picture

Whois Brookfield Properties? (basically Goldman Sachs)

Richard B Clark President and CEO of Brookfield Properties
Board Member [ +1 ]
John E Zuccotti Real estate lawyer at Weil, Gotshal, Manges LLP
Chairman ('97?)
William T Cahill
Board Member
Gordon E Arnell
Board Member ('00?)
Diana Taylor Director at Citigroup; Longtime partner of Michael Bloomberg
Dennis H Friedrich President and Chief Executive Officer, U.S. Commercial...
President and Chief Executive Officer, U.S. Commercial Operations
Jack L Cockwell Group Chairman of Brookfield Asset Management since 2002;...
Director ('99?)
Roderick D Fraser president emeritus of the University of Alberta; board member of...
Board Member
Ralph Blasi director of security, Brookfield Properties
director of security
Samuel P S Pollock
Director (past)
The Partnership for New York City Nonprofit membership organization comprised...
partner company
Brookfield Asset Management Inc A global asset management company focused on...
major shareholder ? 249.4 million shares *
RBC Global Asset Management (U.S.) Inc. Part of the asset management division...
Institutional investor ? 28.6 million shares
CBRE Clarion Securities, LLC CBRE Clarion is a division of CB Richard Ellis...
Owner ('11?) ? 13.2 million shares
BlackRock Institutional Trust Company, N.A. A privately owned investment...
Institutional investor ? 12.0 million shares
Bank of Nova Scotia
Institutional investor ? 8.5 million shares
FMR LLC The financial services conglomerate, better known as Fidelity Investments
Institutional investor ? 10.1 million shares
Trizec Corporation Ltd. A leading Canadian property development company
Stake owner ? 40% stake
KBR, Inc. Construction, engineering, logistics support
tenant ('10?) *
Societe Generale A large European Bank and a major Financial Services company
tenant ('10?)
Target Corp. retail company
tenant ('10?)
BHP Billiton Limited A diversified natural resources company based in Australia
tenant ('12?)
MSA Security private security firm
security service provider
tenant ('12?)

piceridu's picture

This was posted by another ZH poster not sure who:


Whaaaaaaaaaaaat a coincidence!

Hey, this is great! Imagine the odds of this happening.

Do you know the park in NYC that the Wall Street protesters are occupying?

It's Zuccotti Park.

Did you know this park is not owned by the city of New York?

It is owned by Brookfield Properties.

Who was just hired by Brookfield Properties as an attorney?

Vice President Joe Biden's son.


Who sits on the board of Brookfield Properties?

Well non other than Mayor Bloomberg's live in girlfriend.

Now, guess what company just received some of the last of the Obama Stimulus $$$$$$$.

Thaaaaaaaaaaaat's right, Brookfield Properties.

Isn't life great in America!


Now, guess what, on a completely unrelated note, Wisconsin is shaping up to be the swing state in the 2012 presidential elections. Not Florida. Not Ohio. But Wisconsin.

Now, guess who owns the company that will be tabulating the electronic votes in Wisconsin.

Thaaaaaaaaaaaat's right, the biggest contributor to Obama, the puppeteer George Soros. Whaaaaaaaaaaaat a coincidence!

Now remember what Stalin said. "He who votes does not have the power. He who counts the votes has the power".

silver4me's picture

Im from Canada and all our protests are being broken up too. The Toronto Sun (news paper) is trying to put a spin on, that the protesters are smelly, dirty, and rude. Makes me angry reading the article. To top it off the reporter had an night vision camera and was looking into all the tents. These reporters need to be beaten. Article has me worked right up. They make it look like protesters are a bunch of bums they just don't want to work.

Clock is one minute to twelve MF's.

topcallingtroll's picture

Bloomberg did OWS a huge favor.

Instead of having sex, shitting on police cars, and engaging in drum circles in a central location they are now disbursed, hatching all sorts of plans to get the squid and others, and blending in.

No one with any brains will be hanging out in a Manhattan bar or restaurant bragging about working for Goldman.

That is called a "target of opportunity."

Maybe someone is going to get rich inventing a body fluids detector. If you are an employee of goldman it might behoove you to carry one around when you go out for food and drink. Oh, and get immunized against hepatitis A and B.

I tried to stop those naughty kids, but no one listens to a troll.

Now it is too late to put the geni back in the bottle.

sabra1's picture

ditto for the families of Goldmanites!

Dasa Slooofoot's picture

Did you know that Bloombergs daughter also is working for a private company that together with major Wallstreet banks and NYPD is running a network of spy-cams in Lower Manhattan to surveill and counter any looming threat /protest ?


Yes.  60 Minutes did a piece celebrating it.  

Carlyle Groupie's picture

Fully funded by the squid. He had nothing else to do with his TARP funds.

Non Passaran's picture

They must be an equal opportunity employer!

BTW folks there's another interesting "it's gonna blow" story on Bloomberg - Taunus Holding. Check it out.

DosZap's picture


My heart goes out to you, as one of only twenty conservatives in NY.

NY has always been a fascist haven.And a Nazi jack boot state. Jersey is as bad , and Kali all rank in the top 5.

Get rid of the welfare(able to work,4th Gens) recips there, and in Kali, and we could save a Trillion easy a year.

rambler6421's picture

More Money Printing Bitchez!

Bansters-in-my- feces's picture

Unsecured debt....

Thats not too risky,is it ?

JPM Hater001's picture

I have December 17 S&P 970's so if this is going to happen please be soon.  I am down a small fortune.

Not to worry though...I bought June 2012 1200 and I am pretty sure the can can't get kicked that far.

But come on Crash!

This is sad.  It's almost Christmas.

traderjoe's picture

You understand all of this stuff and still trade - options no less?

razorthin's picture

And right before the holidays.  You sir/mada'am have gonads of steel.

css1971's picture

Um. You do realise they don't play fair?

Treasuries, Hang Seng, Copper, Aluminium, CAC, DAX, EuroStoxx etc all down 30-40% on October 4th. Only the US & UK stock markets were not.

FTSE, DOW, S&P all protected. US stock markets are charmed.

A 40% drop from May would have put the S&P at ~800...

FMR Bankster's picture

Strange sh*t happens when your trading. Fall of 2008 the market went up 15% from friday until 10:00 am tuesday. Look it up. Of course it fell apart by March 2009. You can double your money on either black or red but I wouldn't try it in this market. Too much manipulation. But have fun if your up to it.

Comay Mierda's picture

are you planning on holding them to maturity?  Sell on the next big down move.  you'll get your day in the next two weeks.  very bearish patterns in the major stocks and spx. btw, i hope you are using money that you dont mind losing

LawsofPhysics's picture

How is this not bullish for American treasuries and gold, at least short term?

Jump The Shark's picture

Thought the same thing 2 weeks ago.

bob_dabolina's picture

Don't compare Treasuries to gold around here, that shit could get you killed

LawsofPhysics's picture

Hey, just saying, the liquidity in the treasury market could certainly buy a lot of gold, for now.

seek's picture

Watching the market lately, bullish treasuries and ever-so-slightly bearish on gold denominated in USD. The last few hiccups have sent the USD up, resulting in gold (measured in USD) going down slightly, I don't expect this go round to be much different until Europe really breaks, when we'll see both launch. And then of course when the USD breaks, gold will be heading for an orbit somewhere near Jupiter, again priced in USD.

I was a bit surprised that gold went down the last episode, but hey, more buying opportunities. I ran out of dry powder back at $1400, so not for me, unfortunately.


DoChenRollingBearing's picture


seek, you did just fine running out of black powder at $1400.  Good move & timing.  You can always buy more gold if more black powder comes in.  It's something that a Bearing would do...

I completely agree with you that if (when) Europe breaks, both the US$ and gold will soar.

knukles's picture

The EIB is another canary in the coal mine as evidenced by its very existence as a nonsensical defunct no longer rational lost its purpose swollen unelected bureaucracy sucking the very life blood out of the last and final teat of the entire European continent after the rest of the miscreants.
Sucking hind tit. 
Why then, was it ignored? 
Because until the yield spreads began to widen, nobody except those working at the EIB, their immeidiate family members, relatives acquaintances, mistresses, pimps, whores and crack and cocaine dealers, neighbors and a few yet to be recognized let alone counted revolutionaries who have questioned why it still remains in existence, have even heard of the EIB within the last 20 years.
As a matter of fact, most bond managers alive today heve never even heard of the fucking thing before in their entire life until today, for it has never delivered upon a promise, let alone a fucking Christmas present. 
In fact, it was once rumored that Lucas van Praag once a rising Investment Banking Chief to Be at Goldman, once assigned to cover the venerable institution was relegated to Official Squid Tentacle Interpreter in Chief out of pity when Lloyd forud him scrounging in the dumpster behind the corporate Maxim's take-out cafe at 300 Water Street.
Out of pity or kindness, I suppose. 
That's how bad it is being at the EIB.
And now of all things to have your spread widening as you get older and less relevant.
Sad but entirely true.
When is the world (oh excuse me the NYT now mentioned it) gonna figure out this is all a fucking Very Costly Charade? 

oogs66's picture

another 3 letter entity filled with useless, but connected people that has far too much power

Lord Welligton's picture

And it has pension liabilities of €1.3bn.

€1,000,000 for every employee.

oogs66's picture

How are KFW and IBRD trading?  Maybe this is why the ECB has to lend to IMF, because IMF can't collect from its members and can't issue paper?

wandstrasse's picture

There are no CDS trading on this reference entity (yet)

computer, define 'CDS credit event'

computer: buy cheap CDS, online pharmacy xyz...


computer, define 'EIB CDS credit event'

computer: #devision by zero# error 3334zhe33kj3h3kddzz do you want to report that error?

insidious's picture

How (from where) does the EIB get the money to lend to listed countries? Looks like magic to me, maybe black magic.

"The total subscribed capital of the Bank as of end-2009 was EUR 232 billion, of which EUR 11.6 were actually paid-in.[2] The capital of the EIB was increased through a decision of the EIB's Board of Governors in 2009. The subscribed capital of the EIB was thus virtually doubled between 2007 and 2009."

Let me get this straight.

The EIB is backed by the promises of the governments it lends to. By decree it's board of governors increases its capital when ever the mood strikes it. At present it has 2.5 billion euros on deposit and outstanding unsecured loans of 382 billion euros (from one of the diagrams above). Does that imply a leverage of 152 to 1?

Why should anyone worry the credit worthiness of EIB bonds? What could possibly go wrong?

Lord Welligton's picture

Greece, Ireland, Portugal and Italy are ready and able to meet there commitments in the morning.



css1971's picture

It has 230 billion in capital...

Promised.... LOL. But only 11 billion paid in. Promises, promises everywhere. The bondholder's money just passes straight through to the needful it seems. This is approximately how banking should work BTW. You don't deposit money, you buy bonds. No fractional reserve.

Y'know this is going to be backstopped by the ECB as well. Wake me when the yields hit double digits.

Schmuck Raker's picture

Why so glum, chum?

It's been working fine for the EIB for 60 years.

It will work for the EFSF.  It will work for the ESM.

What could possibly go wrong?

falak pema's picture

only one new black swan?

mt paul's picture

don't over cook

your thanksgiving black swan... 

40 minetes per pound 

Lord Welligton's picture

Question ..... Perhaps someone knows the answer.

Are Sovereign liabilities due to the EIB included in Sovereign debt?


Non Passaran's picture

Don't know but I would expect it should be the same as with ECB and IMF commitments that haven't been paid, no?

pleseus's picture

Not sure what it all means.  I just hope Gold can go to $ 1,300.00 oz and Silver to 25.00 oz so I can buy more.

BidnessMan's picture

Buy quick before gold goes to $13,000 oz. and silver to $1,000 oz. in fiat paper....

bob_dabolina's picture

I heard Larry Summers has sex with black swans and breeds little Larry Summers black swan babies