How imminent bank collapse fears forced the Eunatics to act
It’s becoming clearer with each day that passes why the EC rushed its new bailin law through the European Parliament at the beginning of this month. When the US returns from vacations after September 2nd – and even more so once the German elections take place on September 22nd – we can expect to see the brakes come off eurobank insolvency. But this is a race against time: Angela Merkel’s fate hangs in the balance, and there are clear signs that the bomb might go off prematurely.
Almost exactly a year before the Cyprus bailout, EU Directive 2012/0150 COD was drafted with a view to creating a template for future banking collapses. Its proposals mirror pretty exactly what happened in Cyprus – viz, a prototype bailin. Written in June 2012, it points clearly to the conclusion that Cyprus was a premeditated crime on the part of Brussels-am-Berlin.
The most obvious reference in the document is this one (my emphasis):
‘In any case, if the institution under resolution fails and does not have sufficient funds to repay depositors, the universality of proceedings ensure the equal treatment of creditors irrespective of their nationality, place of residence or domicile…..In order to ensure the equal treatment of creditors, [EU] Company Law Directives contain rules for the protection of shareholders and creditors. Some of these rules may hinder rapid action by resolution authorities.‘
Brussels sources say those safeguards have been quietly, but totally, dumped. The new Law – part of a batch relating to the Monetary Union road map – is, if you like, a post-rationalisation of what happened in Cyprus. But it is also a preparation for what the Eunatics know is coming down the line. What started off as a premeditated plan has suddenly become a matter of urgency. Here’s why.
My Madrid source has been saying for several months now that the Spanish banking system is being quietly propped up by the usual Peter-pays-Paul bollocks Draghi comes up with. Global Economic Analysis blogger Mish sums up the reality thus:
‘Spain’s exposure to Portuguese sovereign debt and unrealized losses on real estate loans are two reasons a collapse is inevitable….Spanish bank exposure to Portugal today is higher than French bank exposure to Greece in early 2010….A restructuring of Portuguese sovereign debt similar to the one completed by Greece, which involved haircuts of over 50%, would wreak havoc on Spain’s banking system.’
Well beyond Spain, Europe’s biggest banks – which have more than doubled their highest-quality capital to meet tougher rules – still have a long way to go in order to satisfy EC/ECB regulators…hence all the scurrying about with rights issues of late. But ringing and Skyping around the Continent last Friday, three large banks were on most people’s lists….and seven were mentioned in all.
Perhaps one of the more surprising of these is Barclays (not domiciled in the ezone, but huge across the EU) in that many observers see the banks’ rights issue as likely to be a flop. This is accurately reflected by the fact that its shares closed nearly 6% lower after the bank said last month that it would issue £5.8bn in shares to meet new EU requirements. More disturbing are the recurrent rumours about “cans full of worms” in the bank, although there is nothing specific to go on.
The most worrying potential casualty – certainly for the inhabitants of the Chancellery – remains DeutscheBank. The main contention is that the bank has taken a colossal hit on currency swaps. Last month Max Keiser described the bank as ‘on suicide watch’, and in June FDIC vice chairman Thomas Hoenig called Deutsche “horribly undercapitalised”. German Sloggers continue to insist that DB is being secretly propped up with government money. There are of course elements in Frankfurt who would love to see more solid bad news from Deutsche to put the CDU completely on the spot; but they remain careful about what they wish for.
The third most commonly mentioned bank in the ‘troubled’ category is SocGen. Look at the numbers on French banking exposure to Greece, and you will see how massively the French dumped their toxic waste onto the ECB after 2010. In some ways, that’s bad for Greece (dumping Athens wouldn’t collapse the French system today) but like every country in the West, there’s lots of sub-sub-glub-glub underwater subprime in there.
In Italy, multiply bailed-out Banca Monte dei Paschi di Siena SpA is not widely expected to make it to the finishing line. Italy’s central bank continues its own Peter-pays-Paul version of the endless circulating money game with MdP, but that show is now so obvious to everyone, it’s hard to see how it can stay on the road, let alone finish up anywhere safe. Standard & Poor’s cut the ratings of 18 Italian banks during the last week of July saying the “recession will be longer than expected”. I must confess I don’t know of anyone who expected it to be short, but there you go.
However, the Slog favourite for Collapse of the Century so far remains Royal Bank of Scotland. I said last week that all this bollocks about the taxpayers getting their money back was, er, bollocks, and this morning Vince Cable as good as admitted that, by saying RBS “will be in public hands for another five years”. It’s actually going to be a large piece of Stonehenge on our backs, but let’s not split hairs. It is a gigantic collapse waiting to happen, and in my view it is inevitable. I really do not see how breaking it up is going to help.
Last but not least, The Cooperative Bank is technically insolvent already. As I explained recently, it is the Bailin Which Dare not Speak it’s Name down Westminster way, so dearly would all Parties in da House like this turd to be flushed away. But it refuses so to do….and the longer they dither, the worse it’s going to get. Basically, what’s happening here is that ‘bondholders’ (who are really old and poor folks converted from depositors some time ago) are going to be treated the same as any trick-or-treat Hedge Fund, in order to bail out the larger account customers….who just happen to include the LibDems, the Labour Party, and the TUC. The Co-op and the Unions in turn bankroll a great many Labour MPs – including Ted Testicles himself, a bloke who isn’t going to emerge from this scandal with a nice smell attached to his body.
In short, thinking that the bailin template is a hastily flung together and somewhat academic exercise is fine if you want to lose the shirt off your back. Otherwise, withdraw such money as you can, and buy any asset that you can. It doesn’t matter if its canned food, gold or a motor bike: just do it – and get a move on.
In the meantime…..