"Sold To You": European Banks Quietly Dumping €300 Billion In Italian Debt

Tyler Durden's picture

While the market is ripping today on absolutely nothing (earlier we noted the rotation of muppet X with muppet Y - this changes nothing but who cares), BTPs are soaring, and confusion is prevalent, one thing is certain: we now know who is not buying Italian bonds. As IFR reports, "European banks are planning to dump more of the €300bn they own in Italian government debt, as they seek to pre-empt a worsening of the region’s debt crisis and avoid crippling writedowns – a move that could scupper the European Central Bank’s efforts to bring down soaring yields. Still reeling from heavy losses on money they lent to Greece, lenders are keen not to make the same mistake twice.Then, under the pressure of governments and a hope that credit default swaps would protect them against heavy losses, they held on until it was too late to sell." And for our European readers who may be wondering who the dumb money will be as this tsellnami unleashes, we have one word: you. "With the ECB providing a bid for Italian bonds that might not otherwise exist, board members at some of Europe’s largest bank say now is the time to accelerate disposals. Many are also reversing long-standing policies of buying into new Italian bond issues, denying Rome an important base of support." And there you have your explanation for today's action - yet another headfake to get the idiot money foaming at the mouths while the insolvent banks quietly dump everything, sending the EURUSD once again higher as EUR repatriation resumes, this time with feeling.

As a reminder, Germany has made it an explicit condition of its participation in the now irrelevant EFSF that the SMP program which is the only program currently functioning to provide secondary market support, be unwound shortly. The SMP currently has just under €200 billion in total bond holdings. Does anyone really think Germany will allow the monetization fund to increase by 150% before Merkel says something? We doubt it. But we know one party that would be delighted if the SMP were to monetize everything: PIMCO parent Allianz, which borrowed a line right out of BlackRock and told the market it is effectively an idiot, and does not reflect fundamentals. Via the FT: "Allianz insisted it was unworried by the political and financial turmoil in Italy as the insurer, Europe’s largest by market capitalisation, suffered from the impact of the eurozone crisis on its bond investments and corporate holdings. The German group – which considers Italy a “second home market”, according to Oliver Bäte, chief financial officer – has some of the biggest sovereign exposure to Italy of any non-Italian financial institution, with government bonds worth €25.6bn at the end of the third quarter, equal to more than 6 per cent of the company’s €413bn fixed income portfolio." Is it clear now why the EFSF as a €1 trillion vacuum cleaner idea came straight out of Allianz? And is it clear now who has the most to lose with the failure of the EFSF as a multifunctional Swiss Army bailout knife?

If the answer is still no, here is where Allianz channels BlackRock:

“We believe the market situation is completely overblown,” said Mr Bäte on Friday as Allianz announced an 80 per cent drop in third-quarter net income. “We have strong confidence in [Italy] . . that it will be able to recover its situation and regain stability.”

The lies continue:

Mr Bäte said Allianz was cutting exposure to government bonds “for those countries where we have a critical perspective . . . This does not apply to Italy.”

As for the truth:

“Our traditional buying days [of Italian bonds] are no longer,” said one board member at a European bank, one of Italy’s 10 biggest creditors, who added that the bank has also sold off previous bond purchases. “Unless there is more certainty on Italians changing direction, it will be very tough for them to find buyers.”

It gets worse:

“You’re better off doing it now rather than waiting,” said one investment banker who is currently working on plans for bank clients to further sell down their Italian bond holdings. “It’s better to take the losses now when everyone is expecting it rather than wait around for a default.”


The ECB has been buying Italian bonds to keep down yields since August. Since then, the institution has bought about €110bn of European government debt, some of which traders say is Italian debt. Most sales have been and will be on the open market.


“The market is still as liquid as hell for those that want to sell,” added a senior banker at one non-European bank. “We managed to sell off half of our holdings in one morning.”

Completing the picture is the answer of who the dumb money is:

Italian bonds still have one support bloc. Domestic banks appear to be holding on to their much larger holdings. As of last December, EBA stress tests showed Intesa Sanpaolo held €60bn of Italian debt. UniCredit and Banca Monte dei Paschi di Siena held €49bn and €32bn respectively. Recent results indicate that those holdings have changed little.


“We will keep investing the largest part of our liquidity in Italian government bonds,” said Corrado Passera, chief executive officer at Intesa Sanpaolo, in a call with analysts this week. “We believe they provide the right yields vis-à-vis the cost. So no policy change on our side.”


Still, according to the investment banker advising firms on their Italian holdings, the domestic banks’ decisions to hold on could have more to do with their inability to offload such large amounts quickly and without deep losses. Indeed, some Italian bankers seem resigned to the situation.


“We feel that fears of a default are greatly overdone, but the market psychology is what it is,” added an executive board member at another large Italian bank, which is also holding onto its bonds. “Lots of players do not want to buy them. They think it is better to sell if you have the opportunity to.”


Capital concerns are also preventing them from selling. “The key issue is on solvency and I think they made a mistake in requiring us to hold more capital,” said the chief executive of a mid-sized Italian bank. “To meet these levels we cannot sell too much of our sovereign debt.”

So instead of selling, Italian banks are doing all they can to dodecatuple down and...buy!?

Right... Thank you for putting that target sign on your back. And also thank the Consob for actually extending the short sell ban contrary to what we said yesterday. Naturally, Europe will never allow financials to be shorted ever again.

Speaking of, where are those ALZ/ASSGEN CDS quotes again?

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Ahmeexnal's picture

We can only hope and pray that the iTalians man up and dump the euro.

Fiat Currency's picture

There will be 2 Euros ... one for the Europeans & one for the Europeons.

redpill's picture

Last one out has to peel the garlic

espirit's picture

Got collateral? Garlic won't do.

Who's going to buy uncollateralized sovereign debt? Buwaahaahaa.

trav7777's picture

All the greaseball euro countries got to use the euro to give them germany's rate for a decade, so they did what any deadbeat with someone else's credit card would...they maxed that shit out.  And now, we're all stunned that fucking italy, who CHEATED to get into the EU in the first place, is still the deadbeat they always were?  I mean with the lira at wtf was it 1000:1 to good currencies? 

The northerners actually believed those greasy dagos would follow the same rules?  WTF?  Have white people really become that mindfucked?

greyghost's picture

not an hour earlier the fox business channel had some fuck from wells fargo investments on touting the time is right to invest in european goverment debt. i thought at the time that wells fargo must have a boat load of shit to unload......no crime here...move along

Chris Jusset's picture

"With the ECB providing a bid for Italian bonds that might not otherwise exist, board members at some of Europe’s largest bank say now is the time to accelerate disposals."

Such a nifty symbiotic relationship: the ECB sucks up the turds and shit that the banks dispose of.  The ECB is not only a toilet for the banks, but a rectal vacuum cleaner as well.

GeneMarchbanks's picture

Nifty, Chris, the turds and shit.

Roy T's picture


Sounds like the Fed's purchases of MBS.

Chris Jusset's picture

Indeed!  So what does that make Bernanke?

chubbar's picture

OT, Been out of the loop all day, did anyone post this little tidbit yet?



This looks interesting. Especially for the customers who have(had) accounts with MF Global. Hahahaha

Did MF Global Use $80 Million in Customers' Gold & Silver COMEX Warehouse Receipts as Collateral for a $300 M Short Term Loan?

Yesterday we advised readers that 1.42 million ounces of registered silver, and 16,645 ounces of registered gold are not currently available for delivery per the CME, due to the MF Global bankruptcy.

This is roughly $50 million worth of silver, and $30 million worth of gold- or $80 million total.
So the question needs to be asked- why are $80 million in gold and silver unavailable for delivery? Did it vaporize overnight?
Forbes today has released an article that may shed some light into WHY $80 million worth of registered gold and silver are currently unavailable- because the warehouse receipts of MF's clients were stolen by company execs and used as collateral for a short term $400 Million loan obtained in an attempt to bridge the failing company until a buy-out could be arranged. When the news of the loan and missing customer assets became public, the lender instantly liquidated the illegally pledged assets- [/b]which apparently included $80 million in registered gold and silver.

Still wondering why The Doc advocates taking PHYSICAL DELIVERY of gold and silver and holding in your own possession?

Now the question remains- WHO lent MF Global $300-$400 Million against $700 million of customer assets a week ago Thursday?

Why do I believe MF Global executives transferred customer assets not cash to “house” accounts? Because missing cash would be noticed immediately. Their clients were still trading and clearing and cash was required to settle. Securities such as U.S. Treasury Bills, blue-chip equities such as CME Group stock held by many exchange members, and physical assets such as gold, warehouse receipts, and other certificates of title are less active. They would not be missed Thursday through Monday.

What did MF Global do once these assets were moved to a “house” account? I believe they pledged the customer assets as collateral for a short term loan.
A privately arranged line of credit, secured by a basket of assets discounted by up to 50% due to the risk of default and the firm’s desperation, could be unwound as soon as a deal to sell the firm was struck. All the assets could go back into the customer accounts and no one would be the wiser. "............

Ahmeexnal's picture

was it...Douche Bank???

Careless Whisper's picture

The Careless Whisper Afternoon Update


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PHOTO OF THE DAY: Who's Your Daddy?


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lincolnsteffens's picture

Funny ++ Who's your daddy! good one

Biggvs's picture

In other words, the ECB will more or less buy the Italian bonds from the banks.

walküre's picture

Fantastic. It's a bailout for the banks. ECB is 2 years behind the curve ball.

Don't ask where the money comes from, just ask what you can do with the money.

I get it.

Risk On. Fire away. Leverage yourself to the max and buy and hold for at least the next 12 months.

Right? Right?

DormRoom's picture

So let me get this straight.  European banks are offloading to the ECB (dumb money), which is backstopped by taxpayers.  So capital (plutocracy) has once again socialized risk, and privatized profits.






SheepDog-One's picture

Which also means theyre clear of any danger of losses so free to drop the crap out of the markets again soon as theyre done.

MachoMan's picture

Given the FED's propensity to engage in swaps, I'd say you're talking about american taxpayers...

walküre's picture

Yes, exactly.

OWS needs to change their strategy.

Beat THEM at their own game instead of uncovering thruth that nobody cares about.

Think about it. For example, get millions of Americans to max out every credit card, every loan, hoard cash and gold and hide it.

Strider52's picture

Since most of us agree that Wall Street is full of nothing but crooks, I suggest that instead of occupying it, we build a prison wall around it. Nobody gets out unless yu can prove that you're NOT one of the bad guys.



XitSam's picture

Yeah! And then Air Force One can crash there and the government can send in Snake "Call me Snake" Plissken to get him out.

Manthong's picture

"a hope that credit default swaps would protect them against heavy losses"

If you understand this disconnect, you understand the complete lie that is the market today.

Ruffcut's picture

Quietly selling huh? Lying sacks of shit need the piss kicked out em.

Racer's picture

So yet another backhanded bailout for banksters

Raskolnikoff's picture

that's funny, Cramer was on the tube this morning talking about how he was buying some Italian bonds, what a coincidence!

ItsDanger's picture

ECB will buy the bonds, roll it over, and repeat.  Only when the cash flow stops from the stronger nations will this end.  Will China, or other countries step in at that pt and purchase assets?  These clowns are destroying future generations because no one has the courage to lead.

The trend is your friend's picture

When the mere survival is at stake for the banksters, THEY WILL PRINT...The ECB will backstop the Italian Bonds as well as France when it gets to them.  The Sharade must go on

ZeroPoint's picture

Both the ECB and the Federal Reserve need to be flushed down the toilet and people every where need to say "never again".



Snidley Whipsnae's picture

The bloated balance sheets of all central banks, including the Fed, will be dumped into the IMF in return for SDRs.

Like this...

worthless crap from central bank balance sheets traded to IMF for worthless crap SDRs.

SDR = just another piece of worthless paper

When IMF balance sheet gets so bloated that no one will accept SDRs then a Martian Central Bank will be called on to trade REITS on Mars for whatever crap exists on the IMF balance sheet... and some idiots will be writing CDS on the Martian REITS... Next up Venus, Jupiter, the fucking moon, whatever...


fajensen's picture

Haha: Its an idea for a game!

A network of nodes interconnected with pipes all leading to bigger, more fortified, nodes with the central bank in the middle. The nodes suck up ressources and spill toxic waste in return. The objective is to use a fighter plane to kill regional nodes before their poison kills the players ressource accumulation (ressources are gathered from unpoisoned land and used for upgrades), thereby cutting the central feed to to lower nodes, causing them to die too, until enogh regional defenses are down to take on the main node(s).

There is a time limit: Killing regional nodes causes toxic sludge to migrate up the pibelines towards the center nodes. Not killing nodes causes the sludge to poison your ressources. When enough sludge has accumultated in a node, it will detonate in a nuclear explosion that will devastate the local landscape and kill the player if he is close. The central bank node will blow half the planet away - if it blows up before it is destroyed by the player.

Fast and frenetic gameplay. Wee.

Mercury's picture

    "Sold To You"

    BLK: "Done."

Socrate's picture

Say what? It looks like European banks are dumping their PIIGS bonds directly in ECB's hands. It is all as planned under the table during the October 26th euroheadz meeting. And all of this - to prevent writedowns to happent and to make moral hazard less possible the way that PIIS wanted it to be (eg. asking for write downs just like Greece).

In other words, it looks like all the toxic bonds will be only in ECB's hands and it is somewhat funny. They are the only one who deserve these zero-cost bonds.

XtraBullish's picture

Glad to have bought the crash in September and am XtraBullish. ZeroHedge continues to provide the perfect offset to CNBC bullshit and for that I am grateful. However, I am most certainly bullish for a move into the Spring and you know what? We haven't seen new highs in years despite record money-printing. I see 1,600 on the S&P by Summer 2012. That's the good news. The bad news is that it will cost $5.00 for a loaf of bread.

jomama's picture

not sure where you live, but it already costs 5 bucks here in the ca. bay area.

that is, for whole bread, not the HFCS/bleached wheat garbage bread.

SheepDog-One's picture

$5.50 a loaf for anything worth eating here, and the garbage bread is $3.
Rock on bankrupt US. Hey stocks are up, nothing to see here!

XitSam's picture

Bread machine. My Zojirushi is nice.

Jena's picture

Me too.  Added plus:  You control what goes in it and more importantly, what doesn't.

Hohum's picture


You may be right; you may be wrong.  However, the junkers don't want to look at correlations.  Sure equities up.  But, as usual, oil up, dollar down, gold/silver up.



SheepDog-One's picture

XtraBullshit with the dollar drop and oil up, youre not even keeping even with your 'bullish' stance on stocks....losing.

Poetic injustice's picture

RobotTrader, please use your handle to avoid misunderstandings.

That was addressed to handle XtraBullish.

kito's picture

lets all give thanks to blackrock!!!! if it wasnt for them, the fed would be forced to buy this crap

fonzanoon's picture

the federal reserve owns all our toxic shit. Seems to be working well enough here.

walküre's picture

It sure seems that way. All logic has been abandoned though. Debt that keeps growing and can never be repaid.

Growing debt that is serviced by reduced revenues and nobody wonders just how it's done.

OWS is on the wrong path.

There's only one way to get to these fuckers and it's by beating them in their own game.

RobotTrader's picture

FSLR is my proxy for Europe debt

If it makes a sharp reversal, bears need to watch out.

Tons of hedge funds are short this stock as an artificial hedge against Euro sov debt.

46% of the shares floated are now short.


Careless Whisper's picture

46% of the shares floated are now short.

Goldman upgrade imminent. Short squeeze heaven.