FT Reports Europe To Sacrifice Its Banks To Bailout Sovereigns - Under €100 Billion In Bank Recap Funding Available
It's 3pm: do you know where you last hour of trading bailout rumor is? Today, the Guardian passes the baton back to the FT, which however has released a report which when digested will be very negative for the zEURo.qq. It appears that in order to accommodate more funds for sovereign bailouts under the total max EFSF guarantee cap, as reported on several occasions yesterday by Zero Hedge, only €100 billion will be set aside for bank recapatialization. There is a problem with this number: it is predicated on the European Banking Authority's estimates of capital shortfalls of between €70-90 billion, the is the same EBA which 4 months ago said Dexia was in sterling health when it passed the 2nd Stress Test in pole position. As a reminder, Goldman predicted a €1 trillion capital shortfall, while Credit Suisse said €400 billion. No matter: the EU will come out with a number from its lower colon, just to make the residual maximum sovereign debt "guarantee" notional appear that much bigger. Too bad, however, that in the process it will once again crush Europe's banks which the market will suspect, rightfully so, that they are undercapitalized even post the recap, anywhere between 90% and 75% and will have to accelerate their asset liquidations to fund themselves one more day in lieu of a functioning interbank liquidity market. And so the risk flaring will shift from Europe's sovereign to Europe's banks, and their main proxy in the US - none other than Morgan Stanley which repeatedly refuted it has any exposure to France... but said nothing about its gross (gross because counterparties will blow up fast and furious) to French banks. End result: this is very bad for Europe because it means they have finally done the math and realize that to get the €2 trillion or so in EFSF insured capital they have to sacrifice their banks. Alas, there is no outcome that saves both the banks, and guarantees future European sovereign issuance under the currently contemplated structure. None.
From the FT:
Europe’s grand plan to strengthen its banking system is set to fall well short of current market expectations, identifying a capital shortfall of less than €100bn that must be made up over the next six to nine months, according to the latest official estimates.
The European Union’s estimate of the necessary recapitalisation effort compares with a recent Inernational Monetary Fund report that identified a €200bn hole in banks’ balance sheets stemming from sovereign debt writedowns. It also falls far short of analyst estimates that banks might have a capital deficit of up to €275bn.
Two people familiar with the outcome of an emergency stress test of Europe’s banks said the European Banking Authority, which ran the exercise, had suggested between €70bn and €90bn should be raised. That would allow banks to meet a 9 per cent threshold for their core tier one capital ratios, a key measure of financial strength that goes beyond current requirements, after marking down to market values their sovereign bond holdings of the eurozone’s peripheral states.
A fierce political debate has started over almost all the key assumptions used in the analysis but people familiar with the discussions expect any changes to reduce, rather than increase, the estimated shortfall.
European leaders are due to ratify the plan at the weekend, alongside a broader sweep of initiatives to strengthen the eurozone, including a well trailed project to use the European Financial Stability Facility as a vehicle to guarantee national governments’ sovereign debt issuance.
Apparent deadlock over a mooted state guarantee system for bank bonds, seen as crucial to thaw a frozen funding market will exacerbate fears of an impending credit crunch across Europe.
“This is going to be a damp squib all round,” said one person involved in the process.
We have no idea what a damp squib is, but we have no intention to be long on Monday when we find out.
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Economists call this "scarcity."
Have to? No. They will just sacrifice the EUR/USD and print more Euros, which makes Turbo Tax Tim smile.
Was thinking the same thing. Timmy and Ben will get their inflation come hell or high water.
"Sovereign" ----> most over-rated word of 2011
And simultaneously the most underrated word in modern history.
Who do we rape taxpayers for, bankers or Sovereigns? Hmmm, such a tough decision.
it is more old rapes the young because they joined the ponzi earlier and rode the boom.
America with her corrupt selfish boomer leadership will soon become Italy in the future....
smart young ones are already planning to move out.
A false paradim really in light of our highly-interconnected financial world. But if the choice were real and distinct, most would prefer to see the banks fail. And then the sovereigns would become the banks... and then they would fail.
INFLATE -or- DIE ???
INFLATE-INFLATE-INFLATE!!!!!!
someone's gotta go back and get a shitload of printer cartridges
Half right. They will print what they need to print, while they stack gold and prepare to ramp the price of that gold so their balance sheets, well, balance. That's the rabbit up the sleeve.
NO. I've been saying it for months: European sovereigns will nake their banks take haircuts - and - US banks will carry part of it, because they rigged both European sovereigns and EWuropean banks, and insured the fiat bubble with garbage paper CDS.
Consequently EU and EUR prevails and US and USD goes down.
Watch carefully - it will happen last minute - and then very fast.
Damp squib is UK speak for a wet firecracker. It won't go off. No bang. Weak phizz. Some wisps of smoke.
Sounds like what's been happening when I try to bang the old lady these days.
I'm buying all the Euros
I'm buying all the euros I can while they are still available! If they're good enough for Switzerland, they're good enough for me!!!!
i
What liquidity problem? < snark >
Bullish.
...for U.S. Treasuries and Gilts, which is the reason for the season of European discontent.
Oceania has always been at war with Continental Europe.
Long no fear of the printing press.
Exactly! There is nothing to be afraid of. These two progressive humanitarians have shown the rest of the world how to manage inflation.
http://dailycapitalist.com/2011/04/12/start-crying-for-argentina/
http://whatsnextvenezuela.com/economy/shopkeepers-become-soldiers-in-chavezs-economic-war/
From the article....
"The whole financing deal was set up on Chavez’s order by Chavez’s head of security, Gen. Henry Rangel."
General Rangel? Is that Charlies Rangel's brother? I knew there was something fishy about that family! ;-)
Argentina police officer María del Luján Telpuk ........ HOT HOT HOT
http://www.google.co.nz/search?q=Mar%C3%ADa+del+Luj%C3%A1n+Telpuk&hl=en&rls=com.microsoft:en-us&rlz=1I7ADFA_en&prmd=imvns&tbm=isch&tbo=u&source=univ&sa=X&ei=ITSfTseiF9HUmAX3lrmyDg&ved=0CB4QsAQ&biw=1280&bih=630
is she the next president with plastic boobs?
Seq--Noooooooo! Don't join them. It's a disease. Like zombification.
Speaking of which--you know how, in the zombie movie, the hero stabs the zombie through the eye or something and he thinks it's dead but after lying there a minute it roars back to life and attacks....that's this zombie market and the hero is ZH, which ought to alternately be called ZombieHeadhunter.
Come on Zombie Headhunter, cut off the head, cut of the head!
European leaders are due to ratify the plan at the weekend, alongside a broader sweep of initiatives to strengthen the eurozone,
Seems pablum is the precursor to hopium. As Cris Carter would say...C'mon man.
buy the rumour
sell the squib
lower colon. haha. you must mean spinkter hole
i thought he was refering to colon powell!
well......we certainly do find ourselves in quite a pickle. LOL
damp squib - http://en.wikipedia.org/wiki/Squib_(explosive)#Origin_of_the_phrase_.22damp_squib.22
Origin of the phrase "damp squib"
While most modern squibs used by professionals are insulated from moisture, older uninsulated squibs needed to be kept dry in order to ignite, thus a "damp squib" was literally one that failed to perform because it got wet. Often misheard as "damp squid",[8] the phrase "damp squib" has since come into general use to mean anything that fails to meet expectations.[9] The word "squib" has come to take on a similar meaning even when used alone, as a synonym for dud.
You are just reciting Wikipedia.
Please give credit.
So when does this motherfucker pop? Give me a date dammit.
So the take away is I am not getting my damn pony again this weekend.
Well moving on to "Wanting a Hippopotamus For Christmas".
You have been bad this year Lizzy, nothing but coal for you.
Vagons of coal for 12 hours/day. Future of many.
zEURo.qq.
Heh-heh.
No market here kid...trades on the pinks!
The ECB and the Fed will save the banks, that is their primary purpose.
And since Central banks can print money, consider it done.
Y'know. I don't really think the ECB is a central bank... I'm not entirely sure what it is, but it certainly doesn't behave like one.
Pretty sure its deposit facility and SMP had allowed the EZ zombies to hide the various levels of decay thus far.
Christ, why can't Europe start a 'Dancing With The Czars' TV program and go veg out!
Because Europeans have no interest in watching these people dance:
http://commieblaster.com/images/site-photos/czar_dancing_12_obama.jpg
http://frontpagemag.com/2011/05/16/obama%E2%80%99s-czars-and-their-left-wing-affiliations/
Almost time for the Big Short Part Duex?
I think the original will need a new title once this puppy goes paws up.
Meanwhile...
Good one. Thx
Passing the LIT SQUIB (Fire in the Hole)
Squibs ignite explosives/fireworks. Damp squibs don't ignite. Hence, a damp squib means fireworks are expected, but nothing happens.
http://en.wikipedia.org/wiki/Squib_(explosive)#Origin_of_the_phrase_.22damp_squib.22
If something is expected to have a great effect or impact but doesn't, it is a damp squib.
and the idiots on CNBC have a link that asks "Has Market Sentiment Diverged From Reality?" -- suggesting people are just too negative.
how about WAKE THE FUCK UP GE/CNBC, or, IT'S JUST SO OLD THE WAY THE CONSPIRACY TO PROP UP NONSENSE GOES ROUND AND ROUND.
I was cracking up when I read that this morning--clicked on it cause I thought CNBC was actually going to comment on how insane this rally has been. Damn near pissed myself when I realized they meant that market sentiment is "negative" (11% rallly?) while the realities (End of the free world) are positive....
heheheheheh actually, chuckling as I write this...
I am pissed. I read that twice thinking I had read the article wrong, only to find out I hadn't and therefore wasted twice as much time reading more crap on CNBC.
In der New World Order chuckleing werden verboten......
Yeah, weekends are a crapshoot. Do the markets go up 300 or down 300? Plus they HAVE to make a plan this weekend. Since Sarkozy is flying to Germany it tells me Germans are saying enough and that means French banks are dead.
The math simply does not work as there are not enough lifeboats for all persons onboard the Titanic Europa.
The question is do I have the balls to lay on the shorts on Friday evening? So I gotta ask myself, "Do I feel lucky punk"?
Well, do ya?
Make my day!
Quite. And when he got there Merkel probably told him nothing could be done tonight and that he should get back top Paris to be with his wife at the birth of her child.
Let go of your feelings Luke .... Use the force....
Not my business, but I think the flaw in your methodology is trying to catch the first 1/8 of the move, which along with the last 1/8 of the move, was according to Livermore, the most expensive part to try to trade.
If you believe this drop will be the biggest in recent history (or ever), there's no need to time it. You will know it for what it is when it comes and you can short and ride the violent countertrend rallies, over and over again. You are in the driver's seat if you are patient. You don't have to time it.
Don't forget to put away some physical for a rainy day (like when it's raining fire, and the market drags the winners and losers down the crimson maw of Hell) :-)
OK just one fanboi comment. ZH you guys are amazing. I know of *no* other media organ (heh heh) that is so doggedly pursuing the EUR story. It's such a complicated mess of intrigue, lies, history, received wisdom, innuendo, criminal frontrunning, that all the other media gets it wrong or has given up. You guys are cutting through the bullsh*t, sifting through the lies one by one. Thanks...bitchez
EuroHedge; On a long enough timeline......zzzzzzzzzzzzzzzz
Never theought armageddon could be so TEDIOUS
And I stood upon the sand of the sea, and saw a beast rise up out of the sea, having seven heads and ten horns, and upon his horns ten crowns, and upon his heads the name of blasphemy... the euro.
You can donate.
In fact I think I will right now.
Ok so what is it going to cost the banks in terms of coupon on some nice unsobordinated - tier 1 bond issuance. I understand Lloyds bank have been asking around and the word on the street is that for them a 6% yield would be the sticker price.
I could see a decent demand at that level if true.
The BOE is going to be spending much of QE2 on "corporate bonds". For that you can read banks.
p.s. 6% doesn't do it for me, with inflation running at 5.2%
Excellent points - and anyway most of our UK banks would have any top line wiped out out if they had to pay 6% for capital. The pretence that the taxpayer was going to make a profit on his stake would be over. They would be zombified for all to see.
I'm not Art Cashin's older brother, but I remember when $100 billion was a whole lotta money.
(starts trembling and dribbling)
OK. EU is basically saying bank rescues are up to the countries they are domiciled in to deal with. ECB and the other acronyms will try to deal with the sovereigns.
I don't understand why European "leaders" are so wishywashy.
probably the plan all along, create one all powerful bank to rule them all...
A squib is a firework which goes "BANG!!!!" Unless it's damp in which case it goes "phut".
I wonder if their damp squib is really a watertight suitcase nuke?
I Am Jack's Complete Lack of Surprise
Europe is Jacks prolapsed anus
just put them in some warm water for awhile. they'll be fine.... probably.
Surely if they save the sovereigns, the banks will also be saved.. Isn't the problem the exposure to the duff sovereigns? Speaking of which I think I need to order some more.
By sacrifice, they mean nationalize. Which really means print a bunch of money.
about bloody time someone sacrified the banksters!
Pile up the bonfires.....
Or are they coming in with a low-ball number in order to get their nose in the tent? Then later there will be "adjustments" to the bottom line. Not unlike what happens with most military contracts.
No printing of any euro or usd will happen until the voters beg for it. Major banks will fail and millions will have restricted access to their remaining funds. Only then will the printing begin
I keep hearing mass pain and panic is about to descend...yet it never does as markets only blow off to the upside, any downside rarity is kept small.
When will this panic event happen? I'm ready!
Be patient, SheeDog. The producers and director won't kill off the star in the first half of this movie.
SheepDog, I am absolutely convinced the HFT's are allowed to do what they do because their mandate has been to keep bids going in the market. Period. If you watch the tape on a day like this, the market as the botton started falling out would get magical bids....yet over in PM land the slide stayed roughly the same. This is an imporant connection because stocks have risen in the hopes that things will be fixed via monetization of bonds, which should have a much more correlated effect at the very least between equities and the yelllow stuff.....
So, on the news today, and the EUR/USD coming down waaaay off it's highs, Gold and Silver massively sold offf.....YET, YET, equities kept getting huge bids for no reason at all. If what sent equities up 10% gets clearly refuted by the people that matter, shouldn't it gone down 10% on the same noise? But no, that is what the HFT's are for. To keep the bid and farce going as much as possible.
The ALGO's will be run over next week as the banks begin to domino.
So you're basically suggesting that HFTers like James Simons and his crew are conspiring with Bernanke and Geithner to juice the market?
You probably believe in the infamous "anti-silver Cartel" as well, right?
It's amazing how people are so easily seduced by conspiracy theories, ghosts and supernatural fairy tales in the absence of understanding and knowledge.
herp-a-derp-a-do
I love how you follow me around from post to post. It's like having my own little monkey at ZeroHedge.
GO GET ME BANANA!
I wouldn't get you a glass of water if you were on fire.
I know. You're a libertarian.
Hahahah so clueless.
Don't know, but I would think it's not going to happen before the ECB and the Fed populate the asset side of their balance sheets with gold instead of foreign currencies. That seems to be the plan. After that, all bets are off.
Also, I have read that Dodd-Frank removed the federal guarantee on money market funds that was added during the crisis of '08. And that US money market funds have a trillion or two invested in european paper.
So if anyone is going to put money into a money market fund, it would be good to pick one that only purchases US paper. Otherwise if there is a major collapse, your money might not be available to you, just at the time when the juiciest bargains are on offer.
I am not 100% sure of this money-market information, but it is something to consider.
Dodd-Frank also banned a lot of the other techniques that the Fed used to contain the '07-'08 crisis.
Also, seeing as how 'printing' is the lowest polled action ever taken by the govt and basically everyone identifies it with 'bailing out the rich', this selling of more printing by making the voters beg for it will basically have to result from Armageddon.