Is The Next Domino To Fall.... Canada?

Tyler Durden's picture

While two short months ago, "nobody" had any idea that Italy's banks were on the verge of insolvency, despite that the information was staring them in the face (or was being explicitly cautioned at by Zero Hedge days before Italian CDS blew out and Intesa became the whipping boy of the evil shorts), by now this is common knowledge and is the direct reason for why the FTSE MIB has two choices on a daily basis: break... or halt constituent stocks indefinitely. That this weakness is now spreading to France and other European countries is also all too clear. After all, if one were to be told that a bank has a Tangible Common Equity ratio of under 2%, the logical response would be that said bank is a goner. Yet both Credit Agricole and Deutsche Bank are precisely there (1.41% and 1.92% respectively), and both happen to have total "assets" which amount to roughly the size of their host country GDPs, ergo why Europe can not allow its insolvent banks to face reality or the world would end (at least in the immortal stuttered words of one Hank Paulson). So yes, we know that both French and soon German CDS will be far, far wider as the idiotic market finally grasps what we have been saying for two years: that you can't have your cake and eat it, or said otherwise, that when you onboard corporate risk to the sovereign, someone has to pay the piper. Yet there is one place where that has not happened so far; there is one place that has been very much insulated from the whipping of the market, and one place where banks are potentially in just as bad a shape as anywhere else in Europe. That place is.... Canada.

As the chart below shows, which is a ranking of global banks by tangible common equity, lowest first, of the banks with a TCE ratio of under ~4% a whopping 30% are those situated in Canada, the same place where nobody thinks anything can go wrong, and which has been completely spared from the retribution of the bond vigilantes. Something tells us Canadian sovereign CDS, not to mention Canadian bank CDS, are both about to go quite a bit wider...

h/t Geoffrey Batt

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slewie the pi-rat's picture

am now having this thought:  does "jamie" know "ori"?

knukles's picture

+ Fucking Priceless.
Maybe a good thing we weren't drinking buddies.

slewie the pi-rat's picture

mutual memory loss, but thx, and why do you look familiar?  what's your sign?

Sudden Debt's picture

I know a lot of people who actually invested in Candian real estate these last 2 years.

kind of like a flight to... the woods.


fletcherhigh's picture

Pardon me as I am new to this Sudden Debt, but how is that turning out for them? I reside in Canada and would like to know, cheers! 

Sudden Debt's picture

According to them, very well and the outlook they talk about was pretty high to.

If I had the extra cash like they have, I think I would have done the same.


geminiRX's picture

Real estate is done in Canada. Anyone who bought in last 2 years and hasn't sold yet  - is going to get raped. Anybody arguing otherwise should ask themselves where the the US economy is headed and what percentage of the Canadian economy is dependent upon that. A nice blog that Canadian housing porn addicts should read is: Has great commentary about real estate but I don't subscribe to the "diversified, buy and hold bonds and stock stuff he advocates". Don't mention gold on the blog - he hates it.

IQ 145's picture

It's a very poor plan. The risk reward ratio is bad. You can get a silver contract at two to one margin you know. Stick with what you know and what is working.

slewie the pi-rat's picture

i like cananda and i like hozers, too

so do the chinese, judging from recent purchases in vancouver;  if they invade us from up there, they can have seattle for on a 50-year lease.  we need to have some smart mofos learn their lingo

that's it;  my final offer to them; take it or leave it;  but only if they come across the canadian border with ar least 2 infantry brigades.  smiling, too.  BiCheZ!

chet's picture

Theyinvested in physical real estate?  Not in Vancouver, I hope.  They're likely to lose it all.

The near-term collapse of their housing market is the Number 1 most likley culprit in trashing the Canadian banks as discussed in this article.

oa92000's picture

Another bad news, ???

come on , ZERO?? 

andybev01's picture

All your happy are mine!


Your tears are delicious.



TruthInSunshine's picture

The smartest Canadian I know (who happens to beeeee Assssian) swears that the Loonie is the short of a lifetime....not soon...but now.

Canada-Australia-New Zealand for the trifecta.

He also claims the real estate market in Canada is a ripe pustule (and that even Calgary is highly vulnerable WHEN oil drops below $50/barrel), and that austerity meets Canadian Welfare State sooner than 99% of Canadians are going to comprehend.

He could be wrong, but he is a self-made multi hundreds of millions-aire, making his money dissecting financial reports.

So maybe he's right.

Who knows.

And on that note, watch the EUR over the next month. It's all fun and games until nations lose their infrastructure and the politicans and central bankers lose the complete confidence of the populace (as they should lose it; bang up job, boys).

YHC-FTSE's picture

I don't even want to think about the Euro over next month, let alone tomorrow. I'm dreading the day the ECB announces their new and improved sparkling whiter than white EZ bonds. As for the Canadian real estate boohah, I'd guess your smart Canadian (I haven't met a dumb one yet) may be thinking about the fiasco experienced in Vancouver's pump and dump real estate market that pauperised a few HK millionaires. 


Just thinking aloud here, but there's a strange yet compelling correlation between the English-speaking nations (Aust-NewZ-US-UK-Can) that are part of the Echelon network and their banks. I'm no philologist, but I'm beginning to form a theory that English is the language of bullshit, which corresponds with something another clever chap once said: "All language is a lie".


As for the article, is that why Barclays tanked today? Somebody had a look at the bank TCE ratio, scratched his arse and thought any bank that gave back below 3% of its stock value on liquidation instead of say, 5%, is a disaster area? I'd say losing 95% of an asset is as disasterous as losing over 97%, but then again I'm normal. 

IQ 145's picture

Very good post. I agree. I lived there for awhile, I love it, love the people. But, yes, I never met a dumb one either. "Never in doubt, but frequently in error".  Good analysis of the permanent attraction of real estate. I sold my farm there in 1974. As you know, this is not a time to fool around with real estate speculation.

ZeroPower's picture

WHEN oil drops below $50/barrel),


TruthInSunshine's picture

WTI near $70.

And we've only just begun.

Bernak Broke All Again.

data's picture

He might be right, but oil needs to get to $60 or lower.

I just don't think it happens. Too many American dollars being printed.  

I doubt oil gets to $54 this time. 

I'm a buyer of oil between $60 and $70.

So are the Chinese and they've got lots reserves.

Caviar Emptor's picture

US 1oz Gold Eagles now only $4 away from $2,000 for purchase (by credit card). Last call. 


Sudden Debt's picture

silver is at 40 euro's a ounce already here in Europe.

It's becomming talk of the town between the upper and upper middle class right now to start buying.

Soon the middle class will start and than you have a raid on PM's.


Caviar Emptor's picture

Expecting a bump. Agree. PMs are very underowned relative to the degree of economic risks, anxiety and lack of safe alternatives. 

knukles's picture

PMs and anti-depressants.

Sudden Debt's picture

I expect an all out war against PM's.

If the FED and the banks can't get these down, they risk of losing a hughe amount of depostis on them.

If they don't stop them in the next 2 months, it will be to late for them to interfeer.


Caviar Emptor's picture

I think that jig is up. Too expensive and politically difficult to control now. And they don't make a move without the Fed. It's slipping away from them very fast. 

Sudden Debt's picture

They'll try many more times. Don't think they won't try to force it down.

But that doesn't mean you should care :) at least I don't.

I hope they will try to force it lower for a time.


Dog Paper's picture

I'll go with cases of Canadian Club as a safe store of wealth.

Much more liquid.


Gunther's picture

Silver at 40 euros?

In Germany you can buy them for 32 per oz what includes 7% vat, look for Wiener Philharmoniker.

Sudden Debt's picture

I would NEVER buy from a site like this!!



andybev01's picture

"Wiener Philharmoniker." is that German for skin flute?

IQ 145's picture

over and over again I refer you to, right here on your computer. read the business model carefully. It's real silver. you really get to buy it and sell it, and you really can make your profits in more silver. Don't be a complete primitive; the silver in the trunk of the car is funny, but this is business, not a joke.

JohnFrodo's picture

Canada needs a good kick in the ass for electing the biggest one on the planet.

Bill D. Cat's picture

Scoreboard beotch . Mayhap next go around you can get your coalition of commies elected .

machineh's picture

If China boils over, not only will it hit commodity economies like Australia and Canada directly, but also it will knock the props out from under the ever-bubbling Vancouver property market.

Maybe 2012 is Canada's turn to emulate the US housing crash. 

Seer's picture

Very well played.  This has been my exact prognosis for quite some time now.

The other angle on the China meltdown is that there's a TON of Chinese youth in Vancouver who are there on mommy and daddy's dime, and who will be recalled back to China.  This will kill housing demand.  The ripping point will be all the big mortages that were obtained via rental income potential: many folks rent out rooms (I know about this, as my wife used to do this up there).  Add in interest resets (everything is an ARM up there) and it gets pretty shaky.

There is absolutely NO upside here.

data's picture

"Add in interest resets (everything is an ARM up there)"

Historically Canadians vastly prefer fixed mortgage about 75% currently.



azzhatter's picture

But...but... Cramer says...............all time buy buy buy buy

Spitzer's picture

Im from Canada and have been short these banks since they blasted through pre lehman levels. Its been a rough trade but since the downgrade, its paying off.

Canadian people are financially illiterate.

Whalley World's picture

Sadly, you are correct.  My recommendations for many Canadians has been to buy Silver, what they hear is stay in my safe paper.

The Hosers are gonna get Hosed.

knukles's picture

Does that mean we should drop the "financially"?

Arkadaba's picture

Compared to who? Americans? lol!

NotApplicable's picture

Well, there are lots of them that are financially literate. It just so happens that since they are Keynesians, they are incoherent as well, rendering the literacy moot.

Stumpy's picture

Illiterate yes. But talking about money is almost taboo here. When you care and learn about it, people think you're worrying too much.

NotApplicable's picture

Then they attack you and call you greedy for being so entranced by money.

--Freedom--'s picture

Any suggestions on the best way to short Canada? I've been quite happy, to put it mildly, with results from FAZ. Is there a Canadian equivalent?
Thanks in advance.

Spitzer's picture

HFD on the TSX is 2x

HIF on the TSX is 1x

Pile in. 52 week lows in these shorts where not that long ago.

IQ 145's picture

Jesus Christ man, you don't go short on the lows, you go short on the highs. Talk about financial illiiterates. You buy dips, you don't sell them. Or simply stand aside. Do not go short now. the probabilities are stacked against you.

Caviar Emptor's picture

But but but.....Canada has very, very oily sands! 

Cheesy Bastard's picture

 From PIIGS to Canadian bacon in 1 easy step.