http://www.zerohedge.com/news/europes-dead-bank-walking-list-and-eta-until-next-contagion-peak
Submitted by Tyler Durden on 04/29/2012 16:08 -0400
http://www.zerohedge.com/news/%E2%80%9C-trillion-here-trillion-there%E2%80%9D-%E2%80%93-why-90-european-bank-sector%E2%80%99s-market-cap-vaporware
Submitted by Tyler Durden on 04/29/2012 16:55 -0400
Europe's "Dead Bank Walking" List And An ETA Until The Next Contagion Peak
In yet another 2011 déjà vu moment, Europe’s bank funding window is slamming shut again (the catalyst that brought the 2011 Euro crisis vintage to its heights). Nowhere is this more evident than when comparing monthly debt issuance in the first 4 months of 2012 to the previous two years. Sadly, even despite taking place while the LTRO effect was front and center, Europe still was unable to match prior year debt. Fine, the skeptics will say, this simply means that there is less debt maturing and thus less need for new issuance… And the skeptics would be wrong. As charts two and three demonstrate, this is broadly correct for only 4 countries, of which 3 still have their own currencies (coincidence). The balance is a sorry sight, with Germany, Spain and Italy seeing nearly EUR100 billion in net unrolled redemptions just Year to Date alone! As UBS very poignantly points out, “It is difficult to see this as anything other than contagion from the latest variant of the euro crisis.”
Total debt issuance YTD 2012 and compared to 2010 and 2011:
Total YTD debt issuance by country:
And debt issuance net of maturities:
So as the contagion tsunami once again rises to its summer-time crescendo, the market will be quite curious which banks provide the best target practice in a world where suddenly shorting European banks is once again allowed (for how much longer we wonder). And once again courtesy of UBS (which is quite happy to present other banks’ dirty laundry in a smart redirection effort punctuated by the following footnote: “Note: data on UBS is publicly disclosed”) we show readers which banks have once again lost all capital markets access and are most heavily reliant on the ECB as a “key component of the financing structure”
ECB is the primary liquidity lifeline in absolute terms for the following banks:
Same in relative terms, as a % of funded assets.
To the banks mentioned above, we just want to say ‘no hard feelings’: we leave you with UBS’ conclusion on what is certainly inevitable, and will allow you to kick the can down the road at least one more time as y’all get bailed out one more time.
We see a significant possibility of the need for further ECB intervention in coming weeks and months to provide extra funds the financial system and sovereign in Spain, while the debate over banking reconstruction takes place… The market is unlikely in our view to provide the authorities the time to deliver solutions without further official support.
Translated: expect the next Euro-contagion peak within the “coming weeks and months.”
and actually not only the banks in europe starving for fresh funds , their market cap is grossly overvalued as per BIS...
“A Trillion Here, A Trillion There...” – Why 90% Of The European Bank Sector’s Market Cap Is Vaporware*
Two weeks ago the BIS released the Basel Quantitative Impact Survey, "Results of the Basel, III monitoring exercise as of June 2011" which contained several very scary numbers that were noted in Zero Hedge yet which barely received any mention in the broader press. Because the numbers were all very, very large (thinkeyes glazing over 11-12 digits large), and because their existence meant that the long-term, chronic pain for Europe, which is and has been one of public (and selected private) sector deleveraging (which oddly enough is called “austerity” by everyone to no doubt habituate people to associate debt reduction with pain - where is "mean-reversionism" when you need it?), they, and the BIS report, were promptly buried under the dense foliage of the signal-to-noise forest. Yet it is numbers such as these, that provide us with the best possible glance at the entire forest, no matter how much the various global financial authorities enjoy inundating the hapless speculator crowd with endless irrelevant “trees” on a daily basis.
The numbers referred to are the BIS-suggested bank solvency deficiency to reach a viable capital level (not liquidity) explained as follows by UBS:
The QIS states that the June 2011 shortfall of common equity to a 7% common equity tier 1 ratio for major banks globally was €486 billion. We can estimate from this that the shortfall to a 10% common equity tier 1 is €1.02 trillion. Some years hence and before the mitigation that banks will undertake aggressively, but nevertheless, a trillion is a striking number.
UBS is perfectly happy to "go there":
A trillion here, a trillion there...The QIS then goes on. The shortfall to the Liquidity Coverage Ratio is €1.8 trillion and 40% of banks have a LCR below 75%. And the shortfall to the Net Stable Funding Ratio is €2.9 trillion. A third of large banks would not meet the 3% tier one leverage ratio. These are gigantic figures relative to the size of the real economy.Total bank debt issuance globally in the last 12 months was €1.1 trillion. That is, the shortfall in the Net Stable Funding Ratio is almost three year’s worth of issuance capacity.In other words we not only finally have a problem quantified in terms of scale, but the scale happens to be very, very big:These figures compare with global GDP of US$59 trillion (€45 trillion). In other words,the NSFR shortfall is equivalent to over 6% of global GDP. We would not regard this as insignificant.One can just feel the smirk on the author's face as they added that last bit...But forget global GDP - a number goosed by debt creation itself, and thus one which benefits from leverage, the very process the BIS is warning against. Far more disturbing is this number when juxtaposed in the context of the European financial segment, also the inspiration for our title:
For Europe specifically, a related EBA publication15 implies a €511 billion equity shortfall to a 10% common equity tier 1 ratio. This is 90% of the €565 billion in free float market capitalisation of the European bank sector. The Basel III leverage ratio of large banks as of June 2011 would have been a measly 2.7%; the LCR just 71%, representing a shortfall of €1.2 trillion; the NSFR shortfall is €1.9 trillion. Total European bank debt issuance over the last 12 months has been less than €600 billion.
In simple terms, virtually the entire equity buffer of the European financial system, or 90% to be exact, would be wiped out if instead of focusing on maxing out risk returns by unsustainable leverage, Europe’s banks were to actually seek to transform into viable, stable entities, in the process marking their massively mismarked asset base to market. Something tells us that the equity tranche in Europe, and elsewhere, would be rather averse this dramatic writedown in valuation merely for the sake of avoiding future taxpayer bailouts. After all that’s what naïve, stupid, $0.99 cent iApp-fascinated taxpayers are there for: to be abused.
In other words, thanks BIS but your math is not welcome here. The can will promptly be kicked down the road or else.
Yet what is most troubling is that there appear to be no way out for European banks, in other words not even the status quo’s favorite pastime – can kicking – is very sustainable at this point:
Returns on banking are now quite inadequate to attract significant fresh equity into the sector. The regulatory agenda means that there is likely to be little confidence in this changing over the next several years. Banks must therefore turn to the state for their incremental capital or seek to shrink their profile into the amount of stable funding and equity they presently have. Deleveraging is alive and well and living in the euro area.
And just a tangent, the BIS data and analysis was of June 30. That's before all the fun in Europe really started.
Needless to say, raising $2+ trillion in new capital over the next 5 years will be next to impossible as European banks are hardly what one would call profitable (implying retained earnings as a source of capital is nothing but a cruel joke; now as for retained losses...), and as we saw when UniCredit tried to raise some equity in the open market only to see its stock get annihilated in January, pitching capital raises through equity issuance to Euro fins is the surest way for any investment banker to get sacked.
Which means one thing: as markets get progressively smarter (yes, it will take a while) that there is a difference between capital and liquidity, and demand it from banks that otherwise risk a Lehman-like fate, the asset dispositions, i.e., sales of the blue-light special variety, are about to kick into high gear. Here, while for every buyer there may be a seller, when faced with a known onslaught of about $2.9 trillion in asset sales over a period of time, one thing is certain: it will be a mecca of a buyer’s market as liquidations become wholesale and prices across most asset classes tumble as a result.
And as noted in the post just prior, courtesy of Europe’s Dead Bank Walking list, the market will know just where to go first (and second, and third, etc) for the biggest liquidation deals once the “For Sale” signs are posted.
* Vaporware in a Jon Corzine sense, circa November-December 2011; not in the context of Duke Nukem
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