IMF uses Erste results to remind the taxpayers of their responsibilities

It seems highly unlikely that Erste (the biggest banking group in central and eastern Europe) chose late Thursday – just prior to a national holiday in the US – by accident as the time aperture in which to tell everyone it was facing a whopping bad debt provision in Hungary and Romania. The loss is understood to be in the region of €3 billion. Even by contemporary banking standards, that is a rather large amount of money.

This is a multi-layered case, being unique…and yet in some ways absolutely classic in terms of the reaction to it.

For starters, Viktor Orban’s government in Budapest has had the audacity to actually take on a large Austrian banking institution and give it a hard time about unfair business terms: its new law will force Erste to repay rip-off fees involved in Hungarian loans.

And to follow, the Romanian problem in turn involves the government there (in the shape of its local central bank) doing its job and telling the banks to clean out their balance-sheet okey-pokey prior to the much-vaunted forthcoming stress test. Don’t hold your breath waiting for the ECB’s Draghula to pull similar stunts.

But back on the well-worn, same-old same-old trail, my favourite analyst observation was that of Stephen Gould at Natixis, who called it “a clearly bad surprise” that Erste was going to lose so much money – purely because it was being asked to play by the rules. I’m cool with the idea of a bad surprise, but if the nature of the surprise is clear and he’s an analyst, then why was it a surprise?

It seems that, had two relatively poor central european countries not brought all this to light, the stress test would’ve given Erste a AAA+++ rating. But either way, this ‘event’ needs to be judged in the light of previous and current IMF proclamations on the subject of eurozone bank “assets” and “creditors”.

As long ago as 2012, the IMF fessed up to the fact that eurozone banks had €2.5 trillion of dodgey debt on their books; so this little glitchette at Erste is, if you like, slightly more than 1/1000th of the problem…but its appearance on the horizon was enough for the Group’s shares to drop by 17% in six hours. So you can imagine what the main event, when it arrives, is going to be like.

Prior knowledge of the event (which the IMF must’ve had) perhaps prompted IMF leader Christine Lagarde to remind everyone of her ideas about getting us to pay for the mistakes of her and others via a 10% wealth tax on all households above and beyond the thrill of being involved in endless bailins. A release from the Fund earlier this week discussed the expropriation of all eurozone private pension funds without bothering to tell the lucky citizens involved….pretty much the idea persistently tabled by the Troikanauts in Greece since late Spring 2013.

It beggars belief, but it is here – and these maniacs are going to try and pull it off.ersteerste