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French Regulator Urges Banks To Write Down Greek Debt To Realistic Levels

Tyler Durden's picture


Slowly even those staunchest critics of reality, namely undercapitalized and insolvent French banks, are coming to grips with the truth that they are going to see massive losses on their tens of billions of French debt exposure. The FT reports that the French stock market regulator has told French banks to apply realistic assumptions to their Greek debt haircuts. Because through today, French banks only used the 21% agreed upon haircut at the July 21 (and even that number is likely greatly overstated). So where are Greek bonds trading now? Oh about 30 cents on the dollar (70% haircut) , which means at the end of the day French banks will see about three time more losses on Greek holdings than provisioned. And the market, which is not all that stupid, knows this and has been punishing French banks. This is precisely what regulators are trying to avoid. The problem, as is well known courtesy of daily fruitless discussions between Sarkozy and Merkel, is that "French banks have more cross-border exposure to Greece than any other country, mainly through subsidiaries owned by Crédit Agricole and Société Générale. BNP Paribas holds the most Greek sovereign bonds among private sector investors, with €4bn of exposure...French banks argued that limiting themselves to 21 per cent was justified because trading in Greek government debt was so subdued, making market prices unreliable." Uh, what? Those billions in Greek bond volumes, where the 1 year yields 184% in dozens of daily trades, are "subdued" and "unreliable?" Why not just buy the bonds then and take advantage of the illiquid arb then? What's that? Crickets? Oh ok. In the meantime, what is certain is that after the ECB, France is the country most exposed to a Greek admission of reality (even truncated, assuming a 60% haircut which is still generous). Which of course confirms, once again, our thesis that the only source of EURUSD stability in the past two weeks have been French banks liquidating assets, and using the feedback loop of rising asset prices from FX EUR repatriation to sell even more to a willing market.

Per the FT:

Controversially, the 21 per cent “haircut” envisaged for private sector bondholders as part of the rescue package had been used as a benchmark for losses by various French banks and some insurers when they reported their results for the first half of 2011.


In sharp contrast, some rivals in other countries – such as the UK and Germany – had recognised much heavier losses of about 50 per cent on their “available for sale” Greek government bonds, in line with distressed market prices.


The AMF confirmed that it had sent the letters, without releasing a copy. It said the letters had argued that the July bail-out was “jeopardised” and that the 21 per cent haircut was “now perceived as insufficient”.




Following their less aggressive approach to Greek sovereign debt writedowns, shares in French banks suffered in August when fears about eurozone debt contagion among peripheral countries escalated.


Many analysts expect the banks to take a bigger haircut when they report their third-quarter earnings next month. BNP Paribas has already said that a 55 per cent impairment would lead to a provisioning of €1.7bn, on top of the €534m taken at the end of the first half.

Sorry, if it was only €1.7 billion, BNP and be extension, Sarkozy, would not bring the Eurozone to the brink of disaster every single time a haircut of more than 21% was demanded to enact the EFSF and the Greek PIP. After all, it is these banks' own survival tha demand the free recap money (however insufficient) that the EFSF would provide. Banks know this, and thus it makes no sense that the amount in question is so de minimis.

Or, if it is, then things are truly scary in Europe, where massive financial corporations apparently have absolutely no way to raise an amount of capital that is a fraction of a percent of their total "assets."


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Fri, 10/21/2011 - 14:57 | 1798042 LawsofPhysics
LawsofPhysics's picture

So, outright default then?  How long can the French Banks liquidate dollar assets and what is to stop other EU countries from doing so?  Again it seems like this could go on and on and on...

I think the answer may be in an earlier link, but just how much dollar-denominated assets are on the books of the E.U.?  A little help?

Fri, 10/21/2011 - 15:00 | 1798095 Beastmanager
Beastmanager's picture

Write down? They do not know how to write greek. in any position

Fri, 10/21/2011 - 15:07 | 1798128 Josh Randall
Josh Randall's picture

It's just a write off for them -- all these big companies they write off everything

Sat, 10/22/2011 - 05:32 | 1799687 FinHits
FinHits's picture

You see, in the Western culture you can lose all the face you never had, as long as banks and funds don't lose even one percent of bond face value. The same is true in France, plus you honestly believe you never lost any face by doing it.

Arrogance, the power drug for the powerful.

Fri, 10/21/2011 - 14:54 | 1798052 NotApplicable
NotApplicable's picture


Fri, 10/21/2011 - 14:55 | 1798055 DoChenRollingBearing
DoChenRollingBearing's picture

They are going to have to mark to market all that garbage at some point.  They should just go ahead and do it now.  Recognize the losses, take the hits and move on.

Just like we should.  The longer we or they kick that can means bigger problems.  Take the pain now!

Fri, 10/21/2011 - 15:13 | 1798150 DavidC
DavidC's picture

If they'd done that in 2008 we wouldn't be in this even greater mess now. Bunch of idiots and children, if they'd behaved like adults we'd be on the road to recovery.


Fri, 10/21/2011 - 15:48 | 1798293 Clorox Cowboy
Clorox Cowboy's picture

if they'd behaved like adults we'd be on the road to recovery.

Not quite that easy I'm afraid.  This debt crisis is just a symptom of the real problem.  We're running out of cheap energy.  Shhh...don't tell anyone, maybe they haven't noticed yet.

Fri, 10/21/2011 - 18:21 | 1798845 Augustus
Augustus's picture


How much cheaper would NG have to be for you to recognize that it is at a low cost now?

That "Shhh ..." is to keep the noise down so that your sleep will not be disturbed.

Sat, 10/22/2011 - 08:20 | 1799752 falak pema
falak pema's picture

frak gas cheap??? WIth its in-buillt ecological collateral damage costs which look incommensurable, especially in dense urban areas?

Fri, 10/21/2011 - 16:03 | 1798313 macholatte
macholatte's picture


Slowly even those staunchest critics of reality, namely undercapitalized and insolvent French banks, are coming to grips with the truth that they are going to see massive losses on their tens of billions of French debt exposure.

They are not idiots or fools. They have known the truth for quite some time and have been simply looking to do what they have always done..... lay off the losses onto the tax payers while they (the individuals at the top) prosper and parachute out. Just because there is more press coverage of the squirming doesn't mean TPTB aren't all over it and configuring a way to get away. This will not fall apart until they are comfortable that they have saved themselves and sacrificed the fewest soldiers.

Frank Pentangeli: Those were the great old days,you know... And we was like the Roman Empire... The Corleone family was like the Roman Empire...

Tom Hagen: When a plot against the Emperor failed... the plotters were always given a chance... to let their families keep their fortunes. Right?
Frank Pentangeli: Yeah, but only the rich guys, Tom. The little guys got knocked off and all their estates went to the Emperors. Unless they went home and killed themselves, then nothing happened. And the families... the families were taken care of.
Tom Hagen: That was a good break. A nice deal.
Frank Pentangeli: Yeah... They went home... and sat in a hot bath... opened up their veins... and bled to death... and sometimes they had a little party before they did it.



Fri, 10/21/2011 - 15:50 | 1798284 Clorox Cowboy
Clorox Cowboy's picture

They are going to have to mark to market all that garbage at some point. sure about that?  I think that's exactly what this game is about.  They don't EVER want to take those losses, and over the past 3 years they've convinced nearly every politician on the planet that taking losses is taboo.

So who's going to force them to take the losses?

Fri, 10/21/2011 - 14:55 | 1798057 knight99
knight99's picture

The French banks will be nationalized befor this is done.

Fri, 10/21/2011 - 14:58 | 1798078 LawsofPhysics
LawsofPhysics's picture

As I understand it, that would require that France leave the E.U. first.  Rock, meet hard place.

Fri, 10/21/2011 - 15:14 | 1798155 earleflorida
earleflorida's picture

ah yes,... the city of lights has been forsaken by the illuminati 

Fri, 10/21/2011 - 15:13 | 1798147 Instant Wealth
Instant Wealth's picture


au revoir, banque inutile

Fri, 10/21/2011 - 15:17 | 1798166 falak pema
falak pema's picture

nothing new, banque inutile becomes banque futile but utile.

Fri, 10/21/2011 - 15:28 | 1798203 Hannibal
Hannibal's picture

"The French banks will be nationalized befor this is done."

as they should be, a local public utility and Not a casino gambling with opm.

Fri, 10/21/2011 - 14:55 | 1798059 Bazinga
Bazinga's picture

Realistic equals fantasy in our bankster's minds. Can anyone say Mark to Market? That has worked quite well here in the US...

Fri, 10/21/2011 - 15:52 | 1798316 greenfire
greenfire's picture

Mon dieu! Never.  It is, how do you say, impossible...  We are the bankers, and we have a lifestyle to maintain, because we, like American Bankers are mieux que le reste!

In response, I would say
impossible n'est pas français!

Fri, 10/21/2011 - 14:56 | 1798068 Sqworl
Sqworl's picture

The Greek economic system:
> You have two cows. You declare none. You borrow another ten, throw a big party, and eat them all. You then go on strike to demand more cows...

Fri, 10/21/2011 - 16:13 | 1798434 kaiserhoff
kaiserhoff's picture

Even CNBC is getting spanked on this.  This morning, one of their guests said, "if some magic fairy came along and paid all of the Greek debts, they'd be broke again in a month."

Fri, 10/21/2011 - 14:57 | 1798073 Comay Mierda
Comay Mierda's picture

he's expecting the banks to be honest?

Fri, 10/21/2011 - 14:57 | 1798074 Dick Darlington
Dick Darlington's picture

But where is Mr Denial 2011, Christian Noyer? Christian? Christiaaaaan? Christiaaaaaaaaaaaaaaan!!!

Fri, 10/21/2011 - 15:15 | 1798156 falak pema
falak pema's picture

Noyer means 'core nut'.  I think if the banks avow to this meltdown, the nut will dissolve and Christian will  bicycle like a famous Lancelot, on one central banking nut! 

Fri, 10/21/2011 - 15:17 | 1798167 Dick Darlington
Dick Darlington's picture

lol +1

Fri, 10/21/2011 - 14:58 | 1798076 Josh Randall
Josh Randall's picture

Remember when numbers didn't lie ?

Fri, 10/21/2011 - 15:18 | 1798171 earleflorida
earleflorida's picture

parley that with the greek alphabet and you get an aztec tranche - go figure 

Fri, 10/21/2011 - 15:24 | 1798186 earleflorida
earleflorida's picture

2xpost -(

Fri, 10/21/2011 - 14:59 | 1798088 MrBoompi
MrBoompi's picture

If they let Greece "get away with this" I want our national debt to immediately be slashed by 70% too!!!

Fri, 10/21/2011 - 15:01 | 1798099 LawsofPhysics
LawsofPhysics's picture

And there's the rub (moral hazard). My money is on a completely black market form of trade and commerce to resume long before the E.U. figures out what to do with Greece.

Fri, 10/21/2011 - 15:02 | 1798100 Trimmed Hedge
Trimmed Hedge's picture

Taylor, please write/post more about 9-course fine-dining experiences.

Nobody cares about this Euro junk.


Fri, 10/21/2011 - 15:04 | 1798113 machineh
machineh's picture

The Fed's bitch is wheeled out for the final hour ramp:

03:00 Yellen: QE3 could be used if big easing needed 

Fri, 10/21/2011 - 15:06 | 1798121 jarboejl
jarboejl's picture

The Hopium is strong with this one.

Fri, 10/21/2011 - 15:10 | 1798139 buzzsaw99
buzzsaw99's picture

yellen = east coast joo banker, former head of the sf fed. that makes a lot of friggin' sense. carpet bagging bitch.

Fri, 10/21/2011 - 15:05 | 1798116 Withdrawn Sanction
Withdrawn Sanction's picture

So if the banks follow the regulator's advice, does that constitute a "default event" and thereby trigger CDS payouts?  Inquiring minds want to know...

Fri, 10/21/2011 - 15:09 | 1798126 falak pema
falak pema's picture

The french banks, as RM so aptly said, have to bite the bullet. It will be the trigger which will allow Sarkozy to gracefully retract, if the banks avow to 'cooking' their books, and downgrade their asset sheets to market. Its the signal that France will then accept to change the rules of responsibiity as the charade will be over. Lets hope that Sarkozy can tell the wood from the trees. And that the cookie crumbles where Merkel wants the EfSF to be, aka in a realistic place, not where Timmy and Ben would like her to place it, with Sarkozy's collusion, based on french banking make belief and sarkozy's desire to serve US interests and his own election agenda. 

But as downside this will make the 2012 deflationary shakedown more imminent. Unless, Ben begins the QE3 machine, from here to infinity.

Fri, 10/21/2011 - 16:18 | 1798448 FinHits
FinHits's picture

Yeah, it is all about those 6 months to Presidential elections for Sarkozy. By demanding the ridiculous Greek Bailout II goes through with -21% PSI and no changes, he would get a few tens of billions of Euro free bank capitalisation money to France from the other sucker nations of Eurozone over the lifetime of the second bailout (many of them without any exposure to Greek or even PIIGS), just so that some French banks wouldn't need to write off a few hundred million Euro more in 2011.

It is beyond belief how arrogant the French behaviour is, holding the whole world ransom to their arrogance. They get the full support from the French ex-finance minister woman in IMF and the French pensioner in ECB.

He is now facing his comeuppance. I hope.

Fri, 10/21/2011 - 15:10 | 1798133 Belarus
Belarus's picture

Kyle Bass and his Hayman Capital research concluded Greece would default: that the banks neeeded to take a 75-80% hair-cut on Greek bonds to come close to making it realistic. And the problem with that, there's no way they can afford the lookthrough to France's debt, and therefore credit rating, would result in an immediate downgrade by S P. France knows this, and thus hits one of the three pillars yet again--sovereign stress, which is why Sarkozy is begging Germany to help with cross-border banking recaps. 

BTW, Kyle Bass has bet Germany exits the EURO when all is said and done and he's looking more right by the day. Plus, no matter what Germany initially plans to do, there is no way they will go all in, that would be all the power in the weak sovereigns and they know this, which is why they won't do it. Just see EFSF cap here on ZH of just $200b.

See? Next week should be epic. 

Fri, 10/21/2011 - 15:15 | 1798158 machineh
machineh's picture

They've promised to solve it all in six days.

And on the seventh day they rest, to savor their monumental achievement!

Yeah, right ...

Fri, 10/21/2011 - 15:20 | 1798178 Belarus
Belarus's picture

And one other thing, the market is seeing exactly this: the Greek hair-cut HAS to be bigger, which puts far more stress on France, as Germany refuses to go all-in. Just see the countless posts my ZH on the French-German yiled spread at WW II highs of 1.2%. Expect that to continue to widen as Germany holds its ground and everything, I mean, everything, begins grinding to a halt next week. 

Fri, 10/21/2011 - 15:53 | 1798325 Schmuck Raker
Schmuck Raker's picture

How, pray tell, does one place a bet on Germany leaving the Euro? Aside from shorting the Euro.

Fri, 10/21/2011 - 15:11 | 1798142 Eurodollar
Eurodollar's picture

Greece will survive til after the German elections. After that Der Merkel will rock the bunga bunga party to the max, put on some tight lederhosen and feed 12" of pure pain greek style to Pap the castrated puppy.



Fri, 10/21/2011 - 15:18 | 1798169 Lord Welligton
Lord Welligton's picture

The FT reports that the French stock market regulator has told French banks to apply realistic assumptions to their Greek debt haircuts.

He is as they say in the game of Rugby "Getting his retaliation in first".

He knows what's coming and wants to be able to say ... "But but but it wasn't my fault. I told them to be realistic. Can I have my pension and lump sum pay-off know please".

Regulator my arse.

Where was he for the last two years?

Fri, 10/21/2011 - 15:27 | 1798200 Mark123
Mark123's picture

Don't they just get jobs with the banks after they stop regulating....that is their lump sum pay-off.

Fri, 10/21/2011 - 15:19 | 1798174 Cone of Uncertainty
Cone of Uncertainty's picture

The next time my PM comes to be screaming about a stock that is down I'm just going to say the following:

"Bitch, chill the fuck out and relax, these quotes are subdued."

Fri, 10/21/2011 - 15:20 | 1798176 Hannibal
Hannibal's picture

US smart asses still under-estimating Euro sissy tallk, proves that what you Do is what matters, not what you say.

Viva Le Europe.

Fri, 10/21/2011 - 15:20 | 1798179 Mark123
Mark123's picture

Let's have a telethon for French Banks.  Is Gerry Lewis still alive?  He could co-host with Ben Bernanke!

Fri, 10/21/2011 - 15:23 | 1798187 Fix It Again Timmy
Fix It Again Timmy's picture

As a banker would say, "Please translate realistic."

Fri, 10/21/2011 - 15:29 | 1798206 youngandhealthy
youngandhealthy's picture

Mark Greek debt to market some id...ts say? What market? Cash market in Greek debts is dead... If U R talking CDS...give me a break...they changed the rules for CDSs 3 months if that tiny trickle of trades conducted by "pimpled faced traines at Goldman" should make a market....well get URself lobotimized.

Fri, 10/21/2011 - 15:29 | 1798209 azusgm
azusgm's picture

All this talk makes me think of this:

A recognition and liquidation of bad debt would be oh so refreshing.

Fri, 10/21/2011 - 15:32 | 1798215 Money 4 Nothing
Money 4 Nothing's picture

Accountant: Well! what the hell am I supposed to write down?

Regulator: Settle down and do me a favor?

Accountant: What's that!?

Regulator: Grab that set of books over there and make a call to G-Pap and just fill in the blanks the way he tells you too.


Problem solved.

Fri, 10/21/2011 - 15:33 | 1798230 Sudden Debt
Sudden Debt's picture

I think it's better to wait untill next week when the world realizes Europe can't and won't deliver 3 trillion to save those banks.


Fri, 10/21/2011 - 18:21 | 1798843 slewie the pi-rat
slewie the pi-rat's picture

sodden_debt:  3 tril?

if it was 2 tril last week, shouldn't it be 4 tril by next week?

this is capitalism, ya know!

Fri, 10/21/2011 - 15:42 | 1798267 Mark123
Mark123's picture

Interesting interview with Kyle Bass back on October 5th....just as the market started to ramp up.  His observations on the European situation are simple but bang on.  I love it when David Faber keeps trying to say that Germany is so rich they can bail everyone out...

Fri, 10/21/2011 - 15:47 | 1798289 youngman
youngman's picture

And this is just the GREEK DEBT....what about the rest of the crap?????  Oh boy...we can see it from the outside of the sewer pipe...the view is harder to see inside of it...just ask Kadafi.....

Fri, 10/21/2011 - 16:00 | 1798344 youngandhealthy
youngandhealthy's picture

Do U know WHY this Anglo-saxon cry over non-AngloSaxon banks is so loud? Look no further than to this list...Fucking retard Dimon is on 9th place ov the worlds largest Banks......The idiot wants the Business of the Europeans and the Chinese....US is a Fkng Banking Dwarf...and in best Texan manner agonizing over his pitiful is the list from 2010-12-31

1 BNP Paribas SA , Paris , France, 2,675,627

2 Deutsche Bank AG , Frankfurt am Main , Germany

3 Barclays Bank PLC , London , UK 2,326,004

4 Crédit Agricole SA , Paris , France, 2,133,810

5 Industrial & Commercial Bank of China Limited , Beijing , China 2,043,861

6 The Royal Bank of Scotland plc , Edinburgh , UK 2,040,790

7 The Bank of Tokyo-Mitsubishi UFJ Ltd , Tokyo , Japan 1,644,768

8 China Construction Bank Corporation , Beijing , China 1,641,683

9 JPMorgan Chase Bank National Association , New York , USA 1,631,621

Fri, 10/21/2011 - 16:37 | 1798522 machineh
machineh's picture

Stuff and nonsense.

Our deficit is bigger than your deficit, euro punk!

Fri, 10/21/2011 - 16:11 | 1798420 tony bonn
tony bonn's picture

"French Regulator Urges Banks To Write Down Greek Debt To Realistic Levels"

i am expecting the cia to arrange for a mysterious death or yet another lone nut to knock of this kook

Fri, 10/21/2011 - 16:17 | 1798440 Cat On A Ledge
Cat On A Ledge's picture

Which of course confirms, once again, our thesis that the only source of EURUSD stability in the past two weeks have been French banks liquidating assets, and using the feedback loop of rising asset prices from FX EUR repatriation to sell even more to a willing market.

My memory's a little hazy, but wasn't the euro repatriation theory put forward by a Deutsche Bank analyst?

Or perhaps...

Fri, 10/21/2011 - 16:26 | 1798486 youngandhealthy
youngandhealthy's picture

"...Which of course confirms, once again, our thesis that the only source of EURUSD stability in the past two weeks have been French banks liquidating assets, and using the feedback loop of rising asset prices from FX EUR repatriation to sell even more to a willing market...."


Confirms our thesis??!!...WTF.... Crédit Agricole and BNP Paribas stated that Loud and Clear a month ago!!!

Fri, 10/21/2011 - 16:43 | 1798533 Big Ben
Big Ben's picture

The situation in Europe seems worse than it was for the US in 2008.

In the US after housing crashed, the US government increased spending. This doesn't seem to have helped much, but perhaps it did cushion the blow somewhat. Who can tell?

In Europe, the crisis involves sovereign debt, so there isn't any "spender/borrower of last resort" who could try to take up the slack (except perhaps in a couple of the stronger northern European countries). Germany will have enough trouble keeping itself afloat and it is unrealistic to expect it to be the "borrower/spender of last resort" for all of Europe. Road closed ahead. No fiscal stimulus = big time austerity (such as we have yet to see in the US yet).

Fri, 10/21/2011 - 16:48 | 1798546 prophet
prophet's picture

Mr Sarkozy, write down those assets!


(btw, the G-20 is liquid and solvent)

Fri, 10/21/2011 - 19:39 | 1799061 Ned Zeppelin
Ned Zeppelin's picture

Indulge yourself in the thought experiment that the banks and bondholders have every intention of being paid every last cent, with no haircuts, and they will do this by forcing the sovereigns to tax the serfs until they are paid.  Would not be the first time in human history.

Fri, 10/21/2011 - 20:26 | 1799179 Buck Johnson
Buck Johnson's picture

Things are alot worse than they appear, and your correct.  If 1.7 Trillion is considered to little and worth taking the market to the edge, then things are worse.

Sat, 10/22/2011 - 06:48 | 1799707 littleguy
littleguy's picture

Haha Europe.

That is all. 

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