Tag Archives: Banking crisis

Destruction of Cyprus Economy Proceeding Ahead of Schedule

http://www.nakedcapitalism.com/2013/03/destruction-of-cyprus-economy-proceeding-ahead-of-schedule.html A bit older link already but quite thorough.

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Wise words from Larry Summers

On Reuters’ website. In one short piece, the core of the whole problem: intra-EU trade imbalances, which caused the banking system of the EU to (nearly) collapse –  in Greece, Ireland and now, Cyprus. And let’s not forget the state support for the German Ländesbanken, several Dutch banks, a host of French banks. The key point is that Germany’s giant trade surplus was possible because of the institutional set-up of the Eurozone, i.e. the interest setting by the ECB created the possibilities for cheap loans in ‘the periphery’, which were often provided by French and German banks on the prowl for profit.

The only thing that can rescue the Eurozone is a great correction to the trade imbalances, which Yanis Varoufakis could be accomplished by a Surplus Recycling System between surplus and deficit countries. This exists for any country – the Finnish Helsinki region pays for the poor northern regions of Finland, similarly the rich ‘Randstad’ region in the Netherlands coughs up the funds to support the North-East of the Netherlands.

Twenty-Cent Paradigms: Is Euro-geddon Nigh?

UPDATE: Check this article on A fistful of Euros for a very comprehensive overview of the matter of the Cyprus-policy rampage itself and all kinds of political validations. I share the conclusion. New Commission now!

 

http://twentycentparadigms.blogspot.fi/2013/03/is-euro-geddon-nigh.html There is a lot to say about Cyprus’ deal, and haven’t had time to digest all the aspects of the deal. But as said in this fairly comprehensive article it does not look good, in particular because again the banks are not dealt with although many of the eurocrisis’ issues originate from excesses in banks – German, French, Dutch, Irish, Spanish etc. The fact that banks become zombie banks propped up by ECB loans is apparently not bothering the EU elites. I suppose soon people will just hide money in socks again, to escape the unfair treatment deposit holders get, likely every time from now on. Oh and Moody’s or Fitch warned some time ago, in relation to SNS Reaal that it would reconsider the credit ratings all over Europe in case depositor’s money would be confiscated.

SNS Reaal owes a Dutch labour union federation 20 million?

According to this news, SNS Reaal owes the Dutch FNV federation some 20 million euros. This claim has its base in a complicated history of both FNV and SNS Reaal, because both are results of mergers. Reaal is a merger of several banks that used to be connected to the unions that now make up FNV. As the safety deposit for this loan/claim was made in shares of SNS Reaal, the FNV federation is not so happy with the current value of those shares.

SNS Reaal press release and reaction

Today the NRC/Handelsblad newspaper had some news on the developments of SNS Reaal. Nothing substantial has happened yet, but because of all the rumours SNS has released press information. The relevant issues here are that SNS is considering many scenarios which would bring relief to the bank’s capital problems – and preferably solutions by private investors. But the bank explicitly states that it is not clear whether or not such a scenario is feasible.

Furthermore, the bank mentions possible increasing future losses at its property business (the main element of the bank’s problems). The editor of the Economy supplement of the NRC newspaper states that the press release hardly inspires confidence – rather the opposite. He sees it as a ‘last call to the life-boats.’

 

Meanwhile, the Dutch finance minister Jeroen Dijsselbloem has stated that the bank is a systemic bank and therefore too big to fail.

More news about SNS Reaal – De Volkskrant and Fitch

This article considers the effects of a rescue of SNS Reaal for a group of private investors that bought certain ‘participation certificates’. I am not exactly sure what these are but they are apparently bank obligations with high risk and high interest. They sound to me like the devices the Spanish banks devised to raise capital.

While details of the bank rescue package and its impact on bondholders have yet to be worked out, most analysts are busy speculating that subordinated debt holders will be forced  to contribute to the recapitalisation effort. But as I say any such  ”bail in” would involve subordinated debt holders – and in particular holders of hybrid instruments like preference shares – taking losses. The hierarchy is just like that, you can’t haircut seniors before you have hit “juniors”. These are the banks own customers, who were basically sold the instruments on the understanding that they were “just like deposits” and very low risk. Bank of Spain inspectors warned Minister Pedro Solbes in a letter in 2006 that these very instruments were being sold to finance high risk developer loans, but no action was taken. Far from making irresponsible investors pay this measure would penalise the very people who help keep Spain’s banking system together, those small savers who forwent going for holidays on credit to Cancun, Thailand or Japan, and failed to increase their mortgages in order to buy lavish SUVs in an attempt to save for their retirement. These are the people who now face the prospect of losing  their precious savings to cover the losses generated by those who did both of the above.

And beyond this issue of subordinated debt is a warning from Fitch (via Yahoo News:

A writedown of bonds however would affect the ratings of Western banks, the FD daily quoted ratings agency Fitch as saying on Thursday.

“If an important country in Europe writes down the ordinary bonds of a problematic bank, that means a complete change in how we look at banks,” Bridget Gandy, head of European bank credit ratings at Fitch said.

The Dutch Finance Minister and soon-to-be Eurozone leader Jeroen Dijsselbloem claimed that Fitch made ‘reasoning mistakes’ but as SNS is a current case, could not further explain the issues. In any case, also the Dutch government sees SNS as too-big-to-fail.

‘What are the German Bankers Thinking?’

Via NakedCapitalism: http://www.nakedcapitalism.com/2013/01/what-are-the-german-bankers-thinking.html