European Banking System on Verge of Collapse; Market Votes “No Confide

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Op donderdag 29 september 2016 21:59 schreef bascross het volgende:
Waar zijn de tijden gebleven dat dit soort topics in een uur werden volgeschreven? Blijkbaar interesseert het veel mensen niet meer. Morgenvroeg in ieder geval weer de popcorn erbij.

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C'mon folks.

First, it's illegal for the German government to bail out Deutsche Bank. That's one of the (few) changes made in the EU post-2008, and it has gone into effect.

However, they can be bailed in.

Now let's talk about what that means, and why in fact it's worthless in a situation like this.

A bail-in would destroy the stockholder equity (first), then bondholder equity which is converted to stock. That sounds ok but there's a problem with it.

It works roughly like this: There are multiple "tranches" of bonds with various seniority associated with them. This is done so the institution pays less to borrow on the "higher" (or "Senior") tranches, because the lower ones are wiped out first before the Senior bonds take any loss.

The issue that arises is that all these institutions "engineer" their tranching through various machinations (including default swaps and similar) so that most of their debt issue is "Senior" or "Super-Senior." They do this to reduce their borrowing costs but the question becomes whether that "protection" is actually effective, and the only way it is effective is if the mathematical models used to derive that alleged risk are accurate.

This is exactly what was done with the various securitized mortgages from "subprime" lenders, incidentally -- and we know how accurate those models were, right?

It works if the losses are modest because the lower tranches are literally wiped out and the more-senior ones are protected. The problem comes if you can't satisfy the financial requirements with those subordinate debt tranches because your modeled risk profile turns out to be dog squeeze -- then the senior tranches get hit.

If these tranches are invaded you will get an immediate run on prime brokerage and other "depository" style accounts because the buyers of those "senior" debt tranches bought them with the full expectation that they were not 50%, not 80%, not 90% but 100% safe and as soon as that belief is invalidated the brown smelly stuff will hit the airmoving device at very high speed.

Indeed a mere belief that such an invasion will happen is probably enough to set off the exodus because once you get into the senior tranches the risk rises above zero that depositors will get hit. And finally, and most-troublesome, unlike with a traditional operating company any such exodus from a bank itself further erodes the bank's capital base and thus is additive to the pressure and the senior tranche loss risk!

Finally, remember that utterly nobody who lied about the solvency of their institutions went to prison after 2008. Nor did any central bank personnel who lied about "subprime being contained." For this reason you cannot believe any such statement from anyone without strict proof, and given the (intentional) opacity of risk in these institutions strict proof is impossible to come by.

So yes, it is not as simple -- or as "safe" -- as people think it is.

This situation is definitely unstable, and if anyone thinks "balance sheets" are ok I will remind you that I was not in 2008 and still cannot possibly analyze any of the European banks on any sort of consolidated basis when derivative exposure and other means of hiding contingent liabilities are included, and those liabilities must be included in the event confidence in the underlying institution -- or group of institutions -- is lost.

twitter:

CNBC twitterde op donderdag 29-09-2016 om 23:01:59 BREAKING: Capula Investment Mgmt. cut some capital at Deutsche Bank, is still a prime brokerage client at $DB - source (via @KateKellyCNBC) reageer retweet

twitter:

MktOutperform twitterde op donderdag 29-09-2016 om 22:09:42 New all-time closing low for Deutsche Bank on the highest volume day in its history, over 51 million shares traded. https://t.co/JTrngSIOU7 reageer retweet

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Op vrijdag 30 september 2016 08:28 schreef Drugshond het volgende:
Grappig... let even op dit topic.
AEX / Hypotheekwaakhond VS klaagt banken aan (196 miljard lawsuit) (uit de oude doos)
7. Deutsche Bank AG - $14.2 billion
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We spreken over 2011. Dat gaat echt geen 5 miljard meer worden. DB heeft het laten versloffen.
Dat is gewoon een bedrag wat nog openstaat zonder rente.

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Op vrijdag 30 september 2016 08:28 schreef Drugshond het volgende:
Grappig... let even op dit topic.
AEX / Hypotheekwaakhond VS klaagt banken aan (196 miljard lawsuit) (uit de oude doos)
7. Deutsche Bank AG - $14.2 billion
--------
We spreken over 2011. Dat gaat echt geen 5 miljard meer worden. DB heeft het laten versloffen.
Dat is gewoon een bedrag wat nog openstaat zonder rente.

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Op vrijdag 30 september 2016 09:52 schreef Boris_Karloff het volgende:
Hopelijk laten ze het hele verrotte kaartenhuis eindelijk eens in elkaar pleuren, zodat we nadat we de huidige financiële topmensen Europa uitgejaagd hebben met pek en veren, eindelijk eens kunnen werken aan een eerlijk systeem voor iedereen.