EU Banks' Capital Deficit Means Greek Default Not an Option
June 7 (Bloomberg) -- A failure by European regulators to make banks raise enough capital to withstand a sovereign default is complicating efforts to resolve Greece's debt crisis.
The “fragilities” of Europe's banking industry mean a Greek default isn't an option, European Union Economic and Monetary Affairs Commissioner Olli Rehn said in New York last week. By delaying a decision some investors consider inevitable, policy makers risk increasing the cost to European taxpayers and prolonging Greece's economic pain.
“European officials are trying to buy time for the troubled economies to get their house in order and the banks to be strengthened,” said Guy de Blonay, who helps manage about $41 billion at Jupiter Asset Management Ltd. in London.
While estimates of the capital shortfall vary, the vulnerability of European banks to a sovereign shock isn't disputed. Independent Credit View, a Swiss rating company that predicted Ireland's banks would need another bailout last year, found in a study to be published tomorrow that 33 of Europe's biggest banks would need $347 billion of additional capital by the end of 2012 to boost their tangible common equity to 10 percent, even before any sovereign default.
European banks had $188 billion at risk from the government debt of Greece, Ireland, Portugal and Spain at the end of 2010, according to a report this week from the Bank for International Settlements. European lenders held $52.3 billion in Greek sovereign debt, with German banks owning the biggest share, the BIS data showed.
A year after the rescue that aimed to stop the spread of the debt crisis, Greece remains mired in recession, shut out of financial markets and saddled with Europe's biggest debt load in proportion to its economy. Moody's Investors Service said June 1 that it sees a 50 percent chance of a Greek default. In a Bloomberg survey last month, 85 percent of international investors said Greece will probably default.
First line, default not an option
Last line, will default
The delay in solving the crisis is allowing the French and German bankers time to dump their CCC Greek Junk Bonds somewhere or onto someone such as a huge EU Pension Fund (as Spain just did with it's bond issues this week onto Santander).
1. has enough money;
2. lives way across town so doesn't really know what's going on;
3. wants to belong to the The EU Club of old white men;and
4. who is sucker enough to buy the Greek junk bonds....
....mmmmm......let me think...what clueless Dupe got the dump from Wall Street of millions those Blacklock stocks in 2008 right before they plunged 60%:
You must be a central banker in training!
Greek banks had no place to go but the ECB and that's where they went to liquify bonds for which they couldn't get anything close to par in the secondary market.
Now the ECB is sitting on almost 1/3 of Greek debt and that threatens the Euro.....
....and has scared primary dealers out of the Greek debt market
Greece has already defaulted accept that one, they are crazed and will not listen to reason, watch your TV. They take down the three giant French banks the next second. All derivatives go into outer space. US gets sucked into the black hole seconds later. Strangely enough the only escape is for the US to bail out Greece and my friends selling that one now is like being a fan of the Stanley Cup winners in Vancouver. That one will be the riot to watch. We need a false flag war now and so history is about to repeat itself. It has to be nuclear to be quick enough. I'm warming up the popcorn machine, turn on Fox news. Hmmm, perhaps Wieners twinkie can be enough of a distraction - we should pay her well but I doubt it will do. Which will trump the Neilson ratings in the US, global war or Miss twinkie telling all - hmmmm -- it's a toss up.
Opinions on how Greek default/restructure may affect gold and PMs ?
First, Eurobanks have already curtailed gold sales and restricted supply back in 2010. Not sure what they did since this article, but it has to have restricted supply and may be a tailwind for gold
The dollar will rally as the Euro takes a hit, and PMs will drop
As investors get hammered on Euro stocks, I would not be surprised to see a selloff of PMs as they haed for the exits and generate cash.
If I were a resident of the EuroZone right now, I would expect a run on the banks as they are all going to have to take a bite of the greek poo-poo sandwich. I would be stacking physical bullion to the rafters. Maybe they are, but the spot price is not reflecting this rush.
As for a direct effect on US markets, there will be fear and money may come out of soem equities for PMs but Im just not seeing a PM rally upon Greek default.
If Greece defaults the CDS holders are the ones who are in trouble.
I read somewhere that US entities are the writers of 30% of Greece's credit default swaps.
Lehman act II is coming if Greece defaults.
Why cannot the ECB simply monetize the debts of Greece the way the Fed is doing it and then slowly infuse Greek banks with $$$.
ECB = Fed
Greek Banks = Wall Street Banks
and ultimately, the ECB balance sheet would multiply several times as the Fed's has done.
If the Greek government nationalizes the banks, Greeks' bank deposits will be back-stopped by Greeks' taxes instead of by the ECB, the only place left for Greek banks go for cash with shoddy Greek collateral in hand.
That'd be the most rational run on banks the world has ever seen: Greeks know that no one in Greece pays taxes. They might as well withdraw their money now before nationalizaton, when everyone else will run.