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Market Slumps After European Banks Admit They Can't/Won't Raise Capital; Will Proceed With Asset Liquidations Instead
It was about an hour before the market close, which means it was time for the latest FT rumor. Only this time, unlike the 3 or so times before, the bazooka was not only a dud, it caused the inverse reaction of that intended, and led to a broad market selloff. The reason: according to the FT (and certainly take this with a salt shaker if previous experience is any indication) is that European banks have balked at the prospect of recapitalizing at current levels ("Why should we raise capital at these [depressed share price] levels?” said one eurozone bank boss. The average European bank’s equity is trading at only about 60 per cent of its book value.) and instead will opt for asset liquidations. Now, whether they won't, or, as we have claimed since the first day we heard of the ludicrous "recap" rumors, they can't, simply because absent a massively dilutive rights offering, nobody in their right mind would lend to an industry which continues to be locked out of short-term funding markets for the 4th month in a row, is largely irrelevant. As a result no new money can come in: a key prerequisite to any European recapitalization plans. Of course, it is one for a "blog" to say that, it is something else for the FT to confirm it, even if it is a rumor. So what will banks do instead: why proceed with all out asset liquidation, and sell anything that is not nailed down. The strawman is that this is capital needed to fund the banks' requirements for higher capital ratios per Basel III and what not. The truth is that banks desperately need any capital just to operate as a going concern, forget some Basel Tier 1 ratio that will only be relevant in 2016. So yes: the bitter truth comes out - recap out; liquidations in, especially of USD-denominated assets. Next step: the realization that he who sells first, sells best. So yes, the "hope, idiocy and #mathfail" induced rally was fun while it lasted. And now it is back to reality.
This radical approach, led by French banks BNP Paribas and Société Générale, would be copied by lenders across Italy, Spain and Germany, bankers said. “Why should we raise capital at these [depressed share price] levels?” said one eurozone bank boss. The average European bank’s equity is trading at only about 60 per cent of its book value.
However, the banks’ “shrinkage” strategy is likely to prove controversial with politicians and regulators if it led to bankers lending less money to customers, jeopardising the eurozone’s fragile recovery, analysts warned.
As was reported earlier, it was Barroso who had a massively disappointing session earlier today, in which not only did he not announce any of the specifics on the EU bank recap plan (because they do not exist!), but demanded that banks scramble to raise their capital ratio, in essence undoing everything that had been done to the moment.
Mr Barroso stopped short of specifying the target ratio, but people close to the process told the Financial Times on Tuesday that the European Banking Authority, the regulator, is poised to set a higher bar than expected – a 9 per cent ratio of core tier one capital to risk-weighted assets – for banks across the continent. A deadline of six to nine months would be set for forceable recapitalisation by governments, if banks have not reached the ratio under their own steam.
But that, as noted, is merely the strawman to give banks cover before investors who demand to know the reason why banks are now scrambling to sell anything not nailed down.
Banks and their advisers said their scope to raise fresh capital from investors was all but non-existent. “I don’t think anyone has access to the markets now,” said one senior European investment banker. Investors are loath to commit to fresh equity injections, in the knowledge that the new money would simply be soaked up by sovereign debt writedowns, bankers said.
But by shrinking assets – the denominator of capital ratios – many banks believe they can reach the targets without resorting to government recapitalisation. In recent weeks, both BNP and SocGen have signalled plans to offload a combined €150bn of risk-weighted assets. Further businesses could now be sold. Italy’s Unicredit and Germany’s Commerzbank were likely to find themselves under most pressure to deleverage and divest assets, bankers said
The FT then proceeds with details about the latest, greatest and fakest stress test about to be unleashed which nobody will care about, as well as what the targeted cap ratio is. That is all irrelevant.
All that is relevant is that suddenly everyone will start wondering what USD-assets do European banks have in inventory that are about to hit any bid in the market. Some hints: stocks, CMBX and, you guessed, Prime-X.
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YAWNNN, shorting was great fun, but back to the bulls now.. it's all about the futures, the market will be continuing up for about 1 more month.
The rumor du jour. Tomorrow, start pumping ESEF again. Goldman Sachs must be making a mint with all the volatility.
Yeah, but really, everyone should be doing that, assuming this isnt a bulltrap, we'll continue up for a long time now.
I respectfully beg to differ! But, suit yourself, on the long side!
Sure, but why do you think we'll be shorting?
What makes me smirk is how all bad European news is already "priced in" to stocks, where as positives (e.g. obvious upcoming inflated earnings we all saw months back) are not.
welcome to zH or wherever tf we have been inserted
DEVO - secret agent man - YouTube
"Markets decline on smaller-than-expected FT rumour"
I think that current irrational exuberance epxressed in buying stocks of EUR is like denial, Feast in the time of plaque. Greece will default, Eur move into inflationary recession, banks suffer, USA stok market down, confidence and wealth effect out of the window, rdeflationary recession q1 2012. Anyway, I think, this is the last time ( may be whole october or november) to get into USD cash, out of stocks. Not as good as at 12800, but 11500 is not bad either. And buy silver or whatever is related to it and can not be overtaxed or confiscated,or nationalized. Not gold, yet- silver will return 300% in 2012, while gold almost nothing. If the markets function still normally in 2012 ( recession, who knows) , the best bet is get fast profits and get them out before someone taxes them 100% or declares illegal.
I have made also a correct short term ( 1 week) prediction about sharp increase in USD per EUR after October 5th, whose consequences I would like to expand upon. The area of correct short term ( 2 weeks ) prediction is encircled to make it visible in the long term graph.
http://saposjoint.net/Forum/viewtopic.php?f=14&t=2626&start=640#p34521
So what I have predicted on October 5th is , that USD per EUR will go up from 1,325 to 1,40-1,425-1,45 till the end of the year 2011. We see the first week of this movement already (of course, it will not move up in straight line, with hiccups, the line is to thick, but the general trend is clear):
Now, where is the logic? Eurozone debt crisis comes to its conclusion, Greece will default in November, that has negative impact on banks which has negative impact on stocks worldwide which has negative impact on business confidence and growth , leading to inflationary recession in Eurozone in q1 2012, and deflationary in the USA in q1 2012.
Why would anyone now buy EURos or Stocks?
I think here we have clear case of psychological denial of what pain is coming so soon, and irrational exuberance of short lived and temporary type impacting the investor behavior. If nothing can be done why not have some fun ( with irrational expectation that somehow things will turn out well).
I think one name for such behavior is (coming from Russian): "Feast in Time of Plague". There must be English saying with similar message.
Looking in the charts, what will happen next:
Greece will default, and from January 2012 there are less and less USD per EUR. As USDx grows, and so does quite a few PM/commodity vs USD, EURozone after dismissing Greece and who else will get inflationary, and in recession. Stocks (DJIA) will fall sharply after this last hiccup, and USA will enter recession in q1 2012, deflationary, with increasing dollar index.
1) For those with EUR, this period Oct-Dec 2011 may be the last one at least for 4-5 years either to buy USD or invest directly into PM, other commodities at good price levels given high USD per EUR ratio ( 1,38-1,45 is as high as it will go).
2) For people with investment in stock indexes, especially in USD, this is the last time to get out into cash at decent levels ( DJIA 11600 is not as good as 12800 but its only 10% below post Lehman USA stock market peak);
3) Once in USD cash, there is still time to buy Silver around 33 till April 2012;
4) For gold , there will be another opportunity window in late January 2012 for about a month to buy it at 1580-1620 USD again.That corresponds with the next dip in USD per EUR in early 2012 to 1,325.
We shall see.
Bank bitchez sitting on the floor tomorrow.
oh for golly sakes....
the media is controlled by the same phuckers that control the markets and the same phuckers that control the government.....(and on and on ad nauseum)
There's an election year coming. No ones wants a bearish market....so you can remove that fugly thought from your head.
They create the news and spin it for sentiment purposes. This has been going on for a long time but more noticeably since March 2009.
Bears might as well kiss their asses goodbye. You got your pullback and a good one. The march is upwards regardless of what the fuck happens.
Gotta it!!!!
You sound just like my dad, who refuses to believe he is going to end the year in the hole because he can't accept that tptb haven't a clue how to duct tape this bitch together anymore. Something I'd suggest you consider--a buddy of mine has been at Goldman since we graduated college. He called me last week to ask if my firm is hiring engineers. In his words--"the jig is just about up."
So people believe the "news" and develop their sentiments from it? Really? Do you?
Or is the idea that plummeting ratings at the "news" networks indicates people are tuning out in droves because of its irrelvancy and blantant falsehoods? (The ease with which one can obtain alternative views also contributes to this decline.)
More likely, people look around their world and they see empty desks at work where colleagues used to work, empty houses where neighbors used to live, and empty bank accounts where money used to be. That's the news that informs sentiment, not some blow-dried transparent piece of self-serving puffery pompously calling itself the news.
But hey, it takes two different views to make a market. Good luck w/your election year, all powerful spinmeister "bull" thesis.
well my comments was laced in sarcasm....but the point is you can play the game or not. Its a virtual reality of musical chairs. Most know its all bullshit yet the addiction to games and the egotistical nature of people make us or whomever "the sport" to the insiders. Its not about the market going up or down but more about a further transfer of wealth from your (my) pocket to their pockets. You and I know the markets are a fucking ponzi scheme. The rationale for market responses is convoluted yet contrived.
The markets will return to their upward momentum. Technically, no harm has been done with this latest pullback.
Nothing has changed for the better since 2009. No arrests. No transparency. No mark to market. Same ponzi schemes are in force. the same Bernank is pulling the levers along with the primary dealers. The TBTF banks are bigger and stronger. And more of your liberties and freedoms are being swept away because many continue to play this game and ignore the reality of the situation. Its a fools game. And as long as people continue to play the games, NOTHING WILL CHANGE.
Technically no harm has been done with this latest pullback'
Technically, the market has been in a down trend (read: bearish) since spring and technically, nothing has changed about that except that earnings are being revised down, unemployment is going up, and there is no QE on e docket. Your rally is on vapors and short covering and is screaming toward a 'technical' brick wall as it is nothing more than a counter trend rally. But keep on extrapolating pipe dreams from your inability to properly read a chart...more fodder for the machine
The fun thing is that people wont accept that the market is going up... who said that it's solved? All the problems will just be pushed into a house, and eventually that house will not be able to carry the weight of all the problems and we have ourselfs a meltdown... but for now, it's FKN BULLISH!!! Taking the Dom Perignon out of the fridge now to celebrate the 30% profit today from DAX Minifutures. ;(
Sounds like somebody got a little greedy and went all in a little too late... Better luck on the next ramp job
What do you mean, I buy and sell the futures daily?
Greece will get their loans, but will face tougher challenges.. the market is bullish for any news that's just slightly positive.
The market is not bullish for news at all. The market is totally divorced from news and trading up and down in a range--the news tries to explain the direction with weak rationalizations after the fact. We've reached the top of that range. Now we go back down. Do you really think that traders only know how to make money in one direction? Do you think they give a shit right now if it's up or down? They are loving this rollercoaster and Traders are the only ones left moving this market--hedgies and mom and pop Have gone to cash. All that matters now is momentum, and fleecing those who refuse to get out of the way when the steam roller switches direction. There are no catalysts at the moment to break the range, no indication which way the market will ultimately break out, in the mean time, weeeee! Up and down, down and up.
As to Greece--drinking the koolaid much? "face tougher challenges"--that's cute. You've got a gift for euphemism. Ever though about a career at bloomberg?
thaaaat explains the 3:30 drop. thx.
A/H report: 125,000 VXX (16:51) & 100,000 TVIX at 18:03 AND 100,000 18:04, all at tiny premium to close. Last time I saw goliaths like this a/h, it proved to be an omen of big downers (just sayin')
Big blocks like that in a/h are either delayed prints or dark pool crosses.
merkozy, trichet, barroso, juncker, berlu, all drunk in Octoberfest. Nobody there to man the ship. While greece pees into the puddle of debt abyss. The wankers at the banks are not ready to lose their jobs, their wives, their dogs and end up as alley cats scrounging out of garbage bins...yet.
I would not be shocked to see this happen:
http://www.zerohedge.com/news/latest-incarnation-european-cdo-cubed-bail...
It seems unwise to underestimate these psychopaths...
FOMC minutes weren't supportive. QE has adverse effects (gas&food riots?) and doesn't appear to stimulate economic growth, only to be used if deflatiion (or inflation falls too far and/or fast). More twist maybe. Not what anybody (outside of 30-year holders) wants.
So maybe comb of fomc plus europe non-news...
Is it finally going to happen now? We been expecting this for years - wholesale asset sell off of stocks, cds, commercial mortgage, paper clips and staplers from the weakest banks - admittedly expected the US banks first, but I won't quibble over geography.
The key here isn't even Slovakia, Greece, EFSF, or the troika. Even if all the rumours of bailouts (Pick a country or bank) are true, we'll just end up going through it again in another quarter because the central banks are going to keep on spoonfeeding the banks at our expense. Look at fucking Dexia and Belgium! I'm resigned to seeing this picture indefinitely until another war or terror attack happens to silence to sheeple who get priced out of Happy Meals.
Counter it. go bull.
yes US assets will be sold first. this will depress prices here but they can never raise enough capital to save themselves anyway. bring it.
Can't they just swap assets with the "good banks"?
So these banks will be dumping Prime-X and Kyle Bass et al will be shorting Prime-X?
And Bill Gross and The Bernank will be holding/buying MBS?
Interesting.
Sadly, our english friends have succembed to the impulse to sell advertising instead of vegetables - which they will need in short order!
http://www.bloomberg.com/news/2011-10-12/london-farmers-offer-60-second-...
The debt bubble in the US has been bursting. It topped at an incredible 380% to GDP in 2009 and has by now dropped to 340% in spite of massive govt. debt increase. So, individuals and corporations have been paying off debt at a quite aggressive rate. Typically you don´t raise prices into a falling market which is why this latest rush from bonds to stocks looks a bit strange. Also, decreasing demand for credit has led to increasingly hopeless situations for more or less dubious portfolios of overleveraged financial institutions. It´s very strange. As the stock market rallies it devalues the assets of banks and other financial institutions. Which are overleveraged as it is. It´s almost like a fox gnawing off its foot to get out of a trap.
occasionally you " create" , a spark! Nice work.
I guess the Bernank is going to be buying Prime X next then
"....a plan of a plan...you want a paln of a plan???...YOU CANT HANDLE A PLAN!!
Is Terry Fuckwitt,really TreasaonSeason...
Stay tuned.
They sure talk alike.
Oooopps...
Sorry TreasonSeason.
I misread your return comment to Fuckwit Terry.
honestly some people.... I am massive physical on both metals... I threw out a question looking to bait an educated response for my own benefit... This is Zero Hedge ... grow up..
I'm getting a bit confused by all this;
Is the EU Commision a bullshit state, or the state of bullshit, or the bullshit you're having, when you aren't having a state, or just a pile of bullshit, proper? ... or is it all of the above? ... ... I need answers damnit!
Jim Rogers
http://www.youtube.com/watch?v=PnozPXgHYeM
ZeroHedge really should read Bloomberg more often. They've just informed me everyone has regained confience in the economic recovery. This was just transitory.
Ok, there are two possibilites here;
either (you are implying) there's no bullshit, and never has been, or, (and this seems more likely) the bullshit is spreading fast ... like a sort of ... iDunno ... ... a contagion?
Did I hear the commode flush? Better late, than never. This has been fermenting since 2007. Bailout plans are not air freshener. Finally, banks have to admit that there is no money. Again, banks lend fantasy, nations pay in reality.
http://georgesblogforum.wordpress.com/2011/07/19/unnatural-law-fiat-curr...
I once was a bear of maximum porpotion, the illusion of decline firmly entreched in my mind and soul. Fundamentals untenable, economy on a global scale rolling over, big (french, german, united states, uk , italy and yes china) banks on the ropes but its all a fantasy of ours here. I've been here a while now and believed that financial justice would be served but NO it will not. We are the bag holders, the serfs, the denyers, the educated, the confused, the understanding, the Tylers. If we do not take matters into our own hands and co-opt the security, cops, janitors and the common person to set or allow us to set the charges then we are all just pissing into the wind. Make war not love, MAKE war not love, MAKE WAR not love, MAKE WAR NOT love, MAKE WAR NOT LOVE. MAKE WAR!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
I know my enemy, do you!
I'm going as Robin Hood for Halloween this year.
The every other week rumors aren't holding up as well as it used too. Sooner or later some country is going to bolt for the door and get rid of things in order to get a good price and leave the rest to get penny not pennies on the dollar.
I appreciate the contributor. Goodness gracious!
Paragraphs, make a good read. { That much better} ...
Awesome.
A fire sale to make distract us from the fact that for the third time in 100 years Germany has actually assumed de facto control of the entire continent and is calling the shots once again.
er ... leme take a shot at that ... to cover your potential loses sufficently ... so that you don't trigger a financial emergency? ... and you do it in the good years, out of your own pockets ... not in a Depression ... at taxpayer expense.
Oh Dear! You couldn't afford it! ... AND PAY HUGE BONUSES ... at the same time!?
Well! That's ok then! ... you can just scab money off the taxpayers when they can least afford it ... to pay for you to get out of jail free! ... (in fact, they CAN'T afford it at all, and nor should they ever have to ... as that's why they paid for a Govt, and Bank regulators ... to make sure it would NEVER come to this ... ... what? ... no one knew that's why these parasites were there for? ... why is that, exactly?).
Yes, it's quaint, but that's the actual point of having a sufficent reserve in place. At end of 1934 the banks that had done the right thing were still operating.
About 7,000 bad and essentially criminally-run banks were gone by mid-1934.
You ask any normal (and mentally-healthy) person in the developed world and they will tell you in clear and concise terms why a capital buffer is normal part of their life's day to day planning and orderly managing ... of their private affairs.
iWONDER WHAT THE BANKS THOUGHT A CAPITAL BUFFER WAS FOR THEN?
So here the bankers are again ... caps in hand to the poor, for the poor to pay for their <ahem> "losses" ... as the bankesters pretend to be able to sell obviously unsellable shit ... so they can further pretend to not be zombies. All the while STILL trying to steal public assets ...
... hmm ... whatever shall we do with them?
Frankly, I find it incredible that a crime-gang of a banker can come out with outrageous shit like that and several hundred thousand men and women haven't immediately hunted him down and hung the degenate little fuckers ... I guess that's still to come.
Goddamn what kind of idiot can fuck up a free money business?
You can't eat Hard Assets....but you can sell them!
I have my eyes on the Bank CEOs polished King George III desk in mint condition (I would expect nothing less from a Bank CEO!)....while they are selling "everything not nailed down" maybe he'll throw in the Queen Anne sofa...slightly used, evidently....
Nice observation Tyler, but wrong. This market is well overbought and a correction is due. The recapitalisation issue might be the catalyst but the reason why the market went down is because it went up too much too fast. If you follow sentiment then you can predict these moves. We behave like a herd of wildebeest chewing their way across the veld and if you observe the herd like a bushman tracker does then you get an idea of what they might do next.