Japanese Zombie Banks Perfected By Europeans

Tyler Durden's picture

We discussed the start of a new breed of bond issuance in Europe earlier in the week. The Ponzi Bond was born and today Banco Espirito Santo, of Portugal, came to the market (was there really an external demand?) and issued EUR1bn of three-year debt guaranteed by none other than the 16.4% yielding-equivalent three-year Portuguese government. Peter Tchir notes that "If the Japanese created the 'zombie' banks, the Europeans are perfecting them."


From Peter,

I haven't found the bond details yet, but I guess there is no rush when you issue it to yourself and send it straight to the ECB.  I can't imagine there was massive actual demand for this.  Portugal itself cannot issue bonds to the market.  Its 3 year debt yields more than 16%.  So why exactly is the ECB so happy to get the bonds with a Portuguese government guarantee?


The bank has a 1.7 billion Euro market cap with a Ba2/BB rating - both with negative outlooks.


If the Japanese created the "zombie" banks the Europeans are perfecting them.


This may not be a reason to be short but it certainly offends one's sensibilities.  It also seems to guarantee that the Portuguese sovereign debt situation is worse than we know (lots of contingent liabilities) and all the banks and sovereigns are becoming increasingly tied together.


On the bright side, the ECB has saved itself the effort of creating a "bad bank" and has just become one.

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??'s picture

speaking of zombies

the latest zombie business network  (bloomberg) is adding CNBS alum Trish Reagan to their stable

redpill's picture

She was in the Nov issue of Playboy
















Made you look ;)

Tortfeasor's picture

I almost started my google search, before scrolling down.


TruthInSunshine's picture

They're turning Portunese!

They're turning Portunese!



I really think so.

Zero Govt's picture

Bloomberg TV had a headline across their screen yesterday, "Keynsian won hands down"

Weird! ...maybe it was a sponsored message from Paul Krugman

PicassoInActions's picture

bad bank, good bank, can i have some...?

Dr. Engali's picture

We need a zombie slayer. How about silver?

JPM Hater001's picture

Let me see if I understand this.

A Portuguese bank issued bonds to (the public? other banks?) and stamped as collateral none other than the worthless Portuguese paper that is crushing the EU banking system.

As explained at a press conference minutes ago: "See, we give you this shit piece of paper and if it goes bad you get this other shit piece of paper over here."

Actual money was never discussed.

Is that about right?

LongSoupLine's picture

I'm reminded of the famous "guarantee sales pitch" from the movie Tommy Boy...classic.


Peter K's picture

THE ECB has always been a bad bank. That's why the German's refuse to guarentee the EURO:)

Let's take it from the top:

The Zimbabwian Dollar is backed by the full faith and credit of the Zimbabwian Treasury.
The EURO is backed by the full faith and credit of ....NO ONE.

And those are the facts:)))))

youngandhealthy's picture

KfW (german state-owned Bank) issued a 3yr Bond today @ 25bp over midswap.....have taste on that one

oogs66's picture

Germany is saving the printing press for their own bad debt!

ebworthen's picture

16.4% three year Portugese bonds?

Sounds a lot like "I'll gladly pay you Tuesday".

Dcheeth2's picture

More like, "I'll C U Next Tuesday". 



chunga's picture

Since we're talking about lousy banks - dig this Federal Court Order - January 5, 2012.

The Playing Field Has Been Leveled

This PDF is on Hamlet so if you hate blogs do not click it.

This will impact hundreds of foreclosure cases directly and potentially many more indirectly.

This gives homeowners leverage against TBTF. Big time.

StychoKiller's picture

Reducing the number of Judges to bribe to one "Special Master" doesn't sound like a leveling to me.  Call me cynical.

chunga's picture

That was my initial reaction too.

If you read it carefully - the most important piece is - page 3, paragraph (e):


“Order the appearance of any persons necessary to settle any claims…”.

This suggests that the court will not permit Motions for Protective Order.

That is the key point. If it were just a matter of failing to dot "i's" and cross "t's" why do alleged lenders always file the motions and remain unresponsive to document requests?

I suppose it could be a trick; but if not these turds will be getting a haircut.

Georgesblog's picture

That makes sense for the ECB. Just cut out the middlemen and become a cesspool repository of bad debt, themselves. It's a brilliant twist on the Shell Game. We'll see how far this goes, before the Federal Reserve is up to it's eyeballs in slop.


Hansel's picture


Yen Cross's picture

 Speaking of " Ponzi Banks".  How about all those " Ghost" , china -thru- Canada Ponzi Shadow / banking { merger and exchange} deals? P.S.

                What ( A)  F..King weak ( s.p.) intended!

non_anon's picture

truly these Zombie banks are feeding on the lving

ucsbcanuck's picture

"I haven't found the bond details yet, but I guess there is no rush when you issue it to yourself and send it straight to the ECB."

Gives masturbation/onanism a bad name...

ucsbcanuck's picture

Unicredit tried to raise cash the non-zombie way - share price has fallen to 3.98 Euro. Based on Tyler's chart from before that makes it close to 39.38% fall.

ThrivingAdmistCollapse's picture

The portuguese government isn't the first to run these kinds of outrageous bonds.  The government is basically running a venipuncture operation to suck the life blood out of the Portuguese tax payers.  Eventually, your going to see some kind of a mass tax revolt in that country.

alexdg's picture

So far atleast 3 banks in Portugal have used this technique to obtain financing : BCP Millennium, Banco Espirito Santo (BES) and Caixa Geral de Depositos (CGD - state owned bank!). Banks issue bonds to themselves and use market rates as reference just to make it look like it's some kind of "real world" market operation, but obviously they'll be paying those yields to themselves so it could be 1% or 30% for all that matters. The Portuguese Central Bank (Banco de Portugal), Government and Troika allow the bank to use the Portuguese Republic as guarantor and the bank pays a spread (of around 1%) on top of the Troika loan rate. The ECB accepts these bonds and loans out an equivalnt amount of cash at its own rate (1%). A 12 billion euro slice of the 78 billion euro bailout package is reserved for guaranteeing comercial bank bond issuing. This year alone almost 5 billion euros have been used up so far, it won't affect the budget deficit this year and hopely banks and the ECB will find some way to roll-over the debt further on so the guarantee never comes home to roost and explode the deficit. All added up banks end up paying a rate of over 6% for these loans.

saiza's picture

Portuguese banks hold up pretty well when financial crisis begun.

Portuguese banks "forced" to bail out Portuguese state after financial crisis.

Portuguese banks lost all credibility and couldn't borrow in normal interbank system, because government was bankrupt, and they had all this worthless collateral.

Portuguese banks are severely under-capitalized, and can't borrow to individual/companies (you can have an idea what are the economical implications of this).

Government can't pay debt to banks, and steals €6 billion from pension funds (€6 a lot for a small country)

Portuguese bank BES Issues 3-Year Debt Guaranteed by Portuguese State to try capitalize. Only very small news on Portuguese newspapers, with almost no information.

BES stocks rise +4%

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