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What Oliver Wyman Really Said About Spain's Banks

Tyler Durden's picture




 

The 'real' results from Oliver Wyman's stress tests are out, via Bloomberg, and there are some skeptical conclusions at best. The expected loss for Spanish banks under the adverse stress test scenario is €253-274 billion (and EUR 173-194 billion under the base-case). The announced capital deficit under the stress scenario of €51-62 billion assumes some rather interesting items:

  • The expected loss is offset by €98 billion of exiting provisions (which will have to be offset by something and if deposit outflows continue, instead of reverse, then this merely accelerates the under-capitalization); and
  • New profit generation of €64-68 billion seems remarkable for a banking system which is inextricably tied to its sovereign and entirely bust itself
  • We won't even speculate how a broke banking system can have a €33-39 billion "excess capital buffer"

It seems clear that adjusting these for any sense of reality means the real loss (or capital deficit) will be well north of the EUR 100 billion assigned to the country. We only wonder if Oliver Wyman was paid, as they should be, in stock of Spanish bank STD, vesting over the next 3 years.

And just so the message is not lost, we repeaet it: the insolvent Spanish banking system is expected to generate up to €65 billion in profits! Yet according to MSCI, the market cap of the entire Spanish banking system is.... €91.82 billion.

You can't make this shit up... (thanks to the Supreme Court we can now swear)

the full report:

OW_Spain

 

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Thu, 06/21/2012 - 13:58 | 2547992 mrktwtch2
mrktwtch2's picture

as the dominoes continue to fall..

Thu, 06/21/2012 - 14:17 | 2548074 malikai
malikai's picture

<--- Worldwide Debt Jubilee

<--- Total System Collapse

Thu, 06/21/2012 - 14:18 | 2548087 malikai
malikai's picture

I don't see any other options at this point. Second could simply be inevitable at this point.

Thu, 06/21/2012 - 14:37 | 2548147 ZerOhead
ZerOhead's picture

Late breaking news...

 

(Reuters) - Failing a successful euro zone bailout and the resultant complete capitulation of Portugal, Ireland, Greece, Spain and Italy, PIGSpIt nations will be asked to kindly transfer all sovereign assets to the ECB, to in turn be retransferred to the EBC (European Banking Cabal), and to kindly turn off the lights and exit the Euro.

 Euro zone finance ministers met in Luxembourg to discuss how to create a new currency union for the delinquent nations.

"We have already started working on the design of the new bank notes with the Commission, the European Central Bank and the International Monetary Fund," Spanish Economy Minister Luis de Guindos told reporters as he arrived for the talks. "We will present the proofs of our new currency, the 'Peasanto' in the next few days."

Thu, 06/21/2012 - 14:42 | 2548161 Cognitive Dissonance
Cognitive Dissonance's picture

"We will present the proofs of our new currency, the 'Peasanto' in the next few days."

Printed in 10 gazillion denomination notes for your convenience.

Thu, 06/21/2012 - 14:57 | 2548210 John_Coltrane
John_Coltrane's picture

Will a clown picture be included on the new currency?

Thu, 06/21/2012 - 16:00 | 2548513 BigJim
BigJim's picture

Herman Von Rompuy is very.... photogenic. I nominate this real-life 'Smeagol' to be the portrait on the new GooglePengo.

Thu, 06/21/2012 - 20:27 | 2549316 Buck Johnson
Buck Johnson's picture

Nice fiction, I don't believe for a minute that if this did happen the countries would turn over their assets.  They would say F you and go back to their respected currencies.

Thu, 06/21/2012 - 14:17 | 2548075 FL_Conservative
FL_Conservative's picture

Glad there are no "stresses" one might consider "adverse" anywhere on the horizon.  Phew!!  Bullet dodged there!

Thu, 06/21/2012 - 14:34 | 2548138 NotApplicable
NotApplicable's picture

Besides, in reality, the numbers so far have wound up far worse than the so-called "adverse" scenarios, if memory serves.

We'd be lucky if it was only that bad.

Thu, 06/21/2012 - 13:59 | 2547996 Zaydac
Zaydac's picture

"New profit generation of EUR 64-68 billion seems remarkable for a banking segment so tied to its sovereign and entirely bust itself"

Easy. Buy Spanish Government bonds yielding 7% (sson 10%) and borrow the money from the ECB at 3% (soon 0%). 

Thu, 06/21/2012 - 14:18 | 2548082 LawsofPhysics
LawsofPhysics's picture

Yes, capital and resource mis-allocation and mal-investment at it's finest.

Thu, 06/21/2012 - 15:07 | 2548253 Belarusian Bull
Belarusian Bull's picture

I think they borrow at 1%...

 

Thu, 06/21/2012 - 15:18 | 2548316 Don Diego
Don Diego's picture

and lever by 10 times,easy money.

Fri, 06/22/2012 - 17:05 | 2552485 joe90
joe90's picture

This is the standard formula for the theft of wealth from any nation with a central bank that uses US federal reserve notes/deposits as "reserves".  Step out of this "club" and face the consequences.  http://en.wikipedia.org/wiki/Confessions_of_an_Economic_Hit_Man

Thu, 06/21/2012 - 14:01 | 2548009 Ineverslice
Ineverslice's picture

We seem to be rapidly running out of offsets....be a good chap and check under those mattresses.

Thu, 06/21/2012 - 14:00 | 2548010 timbo_em
timbo_em's picture

So these 62 bn were just nice headline.

Here one can find the two stress tests:  http://www.bde.es/webbde/es/secciones/prensa/info_interes/reestructuracion.html

Thu, 06/21/2012 - 14:01 | 2548014 timbo_em
timbo_em's picture

edit: stress tests are in English

Thu, 06/21/2012 - 14:03 | 2548016 Cognitive Dissonance
Cognitive Dissonance's picture

Just remember boys....it's not a "real" loss unless you sell. So ya'll hold on to those sovereign notes/loans/bonds/rolls of pretty TP real tight.

Thu, 06/21/2012 - 14:13 | 2548058 Dr. Engali
Dr. Engali's picture

Dollar cost averaging.....all the way to zero

Thu, 06/21/2012 - 14:20 | 2548094 Cognitive Dissonance
Cognitive Dissonance's picture

"This ain't gonna hurt a bit. Promise." - Helicopter Ben

Thu, 06/21/2012 - 17:40 | 2548901 trebuchet
trebuchet's picture

the BASIC point here is the estimate of 253- 274bn LOSS>>>>> O M G !!! 

Anbd that number in turn is likely based on statistical default ratios (ASSUMPTIONS) which are "reasonable"

 

THE REAL FACT is the banks have WAY MORE LIABILITIES than ASSETS.   And NO CAPITAL BASE To make up the difference. 

 

This is an INSOLVENCY CRISIS NOT a LIQUIDITY crisis, NOT a EURO CRISIS. 

 

All the rest are assumptions. 

 

Habing worked around and with these types of consultants and done similar modelling myself, the choice of assumptions become HIGHLY POLITICAL, its a trade-off between Reputation for independence and client "needs"...   OW don't want to go down in history as the guys that collapsed the Spanish economy with faulty assumptions that later proved unlikely to hold but became self fulfilling prophecies... 

 

Even this report is a case of "how long is a piece of string"    dressed up in intellectual business speak for a basic fact: the Banking system unlike all other businesses, MULTIPLE TIMES OVER counts each others' LOANS as their OWN ASSETS: that is the nature of the FRB system. 

So the ONLY way to say "THERE ISNT ENOUGH MONEY TO PAY BACK EVERYONE " is to make ASSUMPTIONS about how it could get paid back.

This is bad.............................................Spanish omelette time

 

 

 

Thu, 06/21/2012 - 14:35 | 2548142 NotApplicable
NotApplicable's picture

Holding bonds = Long war.

(very long)

Thu, 06/21/2012 - 14:05 | 2548021 Al Huxley
Al Huxley's picture

No Fucking Way!  You mean the Spanish banking system might be in trouble?  Quick, Italy, lend them some money to prop them up, just 'til the Spanish real estate sector bounces back.  We'd ask Germany, but they're being real pricks about lending anybody any money right now.

Thu, 06/21/2012 - 14:12 | 2548052 Dr. Engali
Dr. Engali's picture

Italy can't give them any money. They are too busy borrowing money at 7% so they can contribute to the bail out fund and refinance at 3%........I think I just went cross eyed.

Thu, 06/21/2012 - 14:43 | 2548165 Al Huxley
Al Huxley's picture

They'll make it up on volume, though.

Thu, 06/21/2012 - 14:06 | 2548032 slewie the pi-rat
slewie the pi-rat's picture

perhaps we can forgive oliver, since spanish may not be his first language...?

and when he leaned to count, his mother insisted he never touch himself...?

Thu, 06/21/2012 - 14:28 | 2548119 Sophist Economicus
Sophist Economicus's picture

There goes number 11 (or 21 if he takes off his shoes)

Thu, 06/21/2012 - 15:42 | 2548338 slewie the pi-rat
slewie the pi-rat's picture

hey, S_E!

is that a new avatar (+^+) or have you been cloned? 

as a fellow furry animalicus of the treeish meadows, i always felt that altho ralph was a working-class bus driver, the whole nightmare worked for him b/c norton worked in the sewers;  when he walks thru that door, nobody gives a shit...

as theHoneymooners, it wwas about young kids getting started in the 50's(?) and neither wife worked and they didn't have any kids yet

it was a like madMen, but live, youngLabor, and with a better cast and framing;  anyhow,  i heard that by the 60's everybody in certain high school crowds watched this show on MSM at home before they went out to the drive-in, and to draggin' and to drinkin' on sat night

you ever hear about that?

Thu, 06/21/2012 - 14:10 | 2548046 RoadKill
RoadKill's picture

How much did they make them mark down the Spanish and Potugease soverigns by?

Thu, 06/21/2012 - 14:16 | 2548071 Greenie
Greenie's picture

STD ticker was changed to SAN.
It really doesn,t matter, both are going to zero.

Thu, 06/21/2012 - 14:25 | 2548111 CommunityStandard
CommunityStandard's picture

awwww... no more STD contagion puns

Thu, 06/21/2012 - 15:03 | 2548237 John_Coltrane
John_Coltrane's picture

Useful to know though if you own SAN puts like I do though.  I'm guessing SAN will be going to zero despite the "profit" projections of the stress tests.  And who owns a lot of SAN bonds-I'm guessing BBVA which I'm also shorting.  And who own BBVA bonds-why SAN and the rest of the EU banks, like DB which I'm also shorting via puts.  Its a big circle jerk ponzi of the first magnitude.  

Or, as the article states,

"You can't make this shit up..." 

Thu, 06/21/2012 - 14:17 | 2548072 BurgundianRon
BurgundianRon's picture

You mean mark up. Now that ECB rates the sovereigns they're all AAA. All is well!

Thu, 06/21/2012 - 14:18 | 2548084 pods
pods's picture

Let's hope they don't need FED type fudge factors.

Remember Neal back- of- the- napkin Kashkari?

What did he say, 800 billion?

Meanwhile the FED had to shell out like 26 trillion in backstops to keep the show going?

Roughly a factor of 33.  

FWIW

 

Thu, 06/21/2012 - 14:20 | 2548098 malikai
malikai's picture

Nah man, they mean it this time. Seriously.

Thu, 06/21/2012 - 14:18 | 2548086 PontifexMaximus
PontifexMaximus's picture

This is a complete rubbish, those Spanish and Italian (et al) banks should be handed over to the master of the universe: MD. He can provide any size of needed liquidity . He even bypassed Angela twice, with his LTRO's so let him do God'sfinal work, Obamernanke will be grateful?

Thu, 06/21/2012 - 14:19 | 2548088 midgetrannyporn
midgetrannyporn's picture

should make for a nice bonus and a .0000001% divi.

Thu, 06/21/2012 - 14:23 | 2548106 insanelysane
insanelysane's picture

I think the Spanish banks can easily make 65 billion in profits.  It's not like housing has completely collapsed and unemployment is above 25%.  Oh wait....

Thu, 06/21/2012 - 14:26 | 2548112 Abner Doon
Abner Doon's picture
"George, ...you must immediately take down any advertising or postings, such as found on eventbrite, regarding your upcoming CPA CPE events."

 

http://hartzman.blogspot.com/2012/06/george-you-must-immediately-take-down.html

Thu, 06/21/2012 - 14:27 | 2548116 Monkeyfister
Monkeyfister's picture

So, is the Media embargoing the Moody's Banks Downgrades until the US Markets close? I thought the European statements were due some time ago. Nothing on the net, yet.

Thu, 06/21/2012 - 14:38 | 2548150 NotApplicable
NotApplicable's picture

Wait for it...

Thu, 06/21/2012 - 15:20 | 2548322 Monkeyfister
Monkeyfister's picture

But, the suspence... it's KILLING ME!!!

 

I'm filled with antici... ...

Thu, 06/21/2012 - 14:30 | 2548128 Confundido
Confundido's picture

We easily accept reality, perhaps because we intuit that nothing is real....shit, gold at $1,566/oz looks cheap!

Thu, 06/21/2012 - 14:36 | 2548145 The Axe
The Axe's picture

FLASH CRASH   UOIL       market has No liquidity    NONE

Thu, 06/21/2012 - 14:42 | 2548159 Al Huxley
Al Huxley's picture

At least gas will be cheaper - oh, no wait, I forgot that the rat fucks who control the pricing mechanisms will be keeping the spread for themselves and continuing to fuck the rest of us at the pumps.

Thu, 06/21/2012 - 14:42 | 2548160 csmith
csmith's picture

Santander's symbol is no longer STD; now SAN.

Thu, 06/21/2012 - 14:53 | 2548191 XRAYD
XRAYD's picture

Don Quixote heading that way, as soon as Sancho saddles up the horse!

What was the Horses name?

Rocinante!

Skinny but tough, but not Merkel!

Thu, 06/21/2012 - 15:04 | 2548239 Sleepless Knight
Sleepless Knight's picture

Did anyone here really expect the truth?!

Thu, 06/21/2012 - 15:07 | 2548257 John_Coltrane
John_Coltrane's picture

Maybe nows the time to parole B. Madoff and let him run the ECB?  They need a guy with a proven ability to keep a Ponzi going for nearly 20 years.  These EU nannycrats are pikers by comparison.

Thu, 06/21/2012 - 15:52 | 2548468 Nussi34
Nussi34's picture

Must have benn the workstream that was carried out by Roland Berger. OW used ot be a respectable firm.

Thu, 06/21/2012 - 17:00 | 2548782 Snakeeyes
Snakeeyes's picture

Spain is simple. Crashing house prices, shrinking loan funds, self feeding crash. Banks will blow out.

http://confoundedinterest.wordpress.com/2012/06/21/spanish-banking-woes-continue-while-mortgage-funding-declines/

Thu, 06/21/2012 - 21:12 | 2549449 Wizard of Finance
Wizard of Finance's picture

I think Zh's view in this subject is extremely naive, biased, and simplistic, although they may be right at the end!! 

 

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