From the Telegraph (UK): European bank bail-out could push EU into crisis A bail-out of the toxic assets held by European banks' could plunge the European Union into crisis, according to a confidential Brussels document. By Bruno Waterfield in Brussels Last Updated: 3:50PM GMT 11 Feb 2009 âEstimates of total expected asset write-downs suggest that the budgetary costs â actual and contingent - of asset relief could be very large both in absolute terms and relative to GDP in member states,â the EC document, seen by The Daily Telegraph, cautioned. "It is essential that government support through asset relief should not be on a scale that raises concern about over-indebtedness or financing problems.â The secret 17-page paper was discussed by finance ministers, including the Chancellor Alistair Darling on Tuesday. National leaders and EU officials share fears that a second bank bail-out in Europe will raise government borrowing at a time when investors - particularly those who lend money to European governments - have growing doubts over the ability of countries such as Spain, Greece, Portugal, Ireland, Italy and Britain to pay it back. The Commission figure is significant because of the role EU officials will play in devising rules to evaluate âtoxicâ bank assets later this month. New moves to bail out banks will be discussed at an emergency EU summit at the end of February. The EU is deeply worried at widening spreads on bonds sold by different European countries. In line with the risk, and the weak performance of some EU economies compared to others, investors are demanding increasingly higher interest to lend to countries such as Italy instead of Germany. Ministers and officials fear that the process could lead to vicious spiral that threatens to tear both the euro and the EU apart. âSuch considerations are particularly important in the current context of widening budget deficits, rising public debt levels and challenges in sovereign bond issuance,â the EC paper warned. ~~~~~~~~~~~~~~~~ One curious item: I'm told that an earlier version of this article actually stated that the figure required for a bailout was £16.3 trillion, but that has apparently now been scrubbed from the article. I believe that, because the link to it still has that number in it: http://www.telegraph.co.uk/finance/...16.3-trillion-bail-out-EC-dcoument-warns.html In addition, as of 10:02 pm EST, that figure is still mentioned in a link on the right side of the above page, but that link leads to a blog that has been erased. Hmmm....
If that figure is right we are in for a seismic shift in the world order. It has to be a mistake, even if it was USD it would have to be a mistake. More importantly begs the question of what is really on the books of US banks? If this is true a crash of epic proportions is imminent, load up on puts, and gold. Looks like others notices it too: http://notasheepmaybeagoat.blogspot.com/2009/02/disappearing-163-trillion.html http://www.blacklistednews.com/?news_id=3285 The original article? European banks may need massive bail-out European banks sitting on £16.3 trillion of toxic assets may suffer massive losses, according to a confidential Brussels document. By Bruno Waterfield in Brussels Last Updated: 1:51PM GMT 11 Feb 2009 http://www.telegraph.co.uk/finance/f...ent-warns.html A secret 17-page paper discussed by finance ministers, including the Chancellor Alistair Darling on Tuesday, also warned that government attempts to buy up or underwrite such assets could plunge the European Union into a deeper crisis. National leaders and EU officials share fears that a second bank bail-out in Europe will raise government borrowing at a time when investors - particularly those who lend money to European governments - have growing doubts over the ability of countries such as Spain, Greece, Portugal, Ireland, Italy and Britain to pay it back. âEstimates of total expected asset write-downs suggest that the budgetary costs â actual and contingent - of asset relief could be very large both in absolute terms and relative to GDP in member states,â the EC document, seen by The Daily Telegraph, cautioned. â "It is essential that government support through asset relief should not be on a scale that raises concern about over-indebtedness or financing problems.â European Commission officials have estimated that âimpaired assetsâ may amount to 44pc of EU bank balance sheets. The Commission estimates that so-called financial instruments in the âtrading bookâ total £12.3 trillion (13.7 trillion euros), equivalent to about 33pc of EU bank balance sheets. In addition, so-called 'available for sale instruments' worth £4trillion (4.5 trillion euros), or 11pc of balance sheets, are also added by the Commission to arrive at the headline figure of £16.3 trillion. Banks account for their assets in different ways. Assets put into the âtrading bookâ have to be marked to current market values, while those in the âbanking bookâ are loans and other assets which the institution believes it can hold to maturity. Other assets are classified as âavailable for saleâ, which are also marked to market values. The Commission figure is significant because of the role EU officials will play in devising rules to evaluate âtoxicâ bank assets later this month. New moves to bail out banks will be discussed at an emergency EU summit at the end of February. The EU is deeply worried at widening spreads on bonds sold by different European countries. In line with the risk, and the weak performance of some EU economies compared to others, investors are demanding increasingly higher interest to lend to countries such as Italy instead of Germany. Ministers and officials fear that the process could lead to vicious spiral that threatens to tear both the euro and the EU apart. âSuch considerations are particularly important in the current context of widening budget deficits, rising public debt levels and challenges in sovereign bond issuance,â the EC paper warned. __________________
I am digesting this. The article is poorly written, IMO. Why is the document confidential, and is this common?
You're right. They did try to scrub it. It still shows 16 trillion on the cache. That's very, very odd.
There's nothing secret about this... There's an actual EU Draft working paper coming out with very similar estimates. http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=4ab9df5f-3d77-4e28-a552-69cf140165c0
Thanks for posting this. This is the part that should be paid attention to, the fact that this is not being widely reported has to be because papers have been asked not to dramatize the issue and is probably why the article was changed. It happends a lot in Europe. Doesn't anyone find it curious that no US financial outlets are reporting what is undeniably huge news? Not even a few lines? These estimates are the 1st I have heard in this range, they are many multiples of what previously have been estimated. They also shed some light on why the US banks are not able to pull things together despite their write downs to date. VALUATION PRINCIPLES 1. The determination of the fair value of financial instruments in the trading book and those at fair value under the fair value option (13.7 trillion euros or 33 percent of EU bank balance sheets) and instruments available for sale (4.5 trillion euros, or equivalent to 11 percent of EU bank balance sheets) is based on a three level hierarchy: - mark to market in active markets, - mark to model in inactive markets using observable inputs - mark to model without observable inputs. The last two must be agreed and could vary with the individual assets concerned, the Commission said. For other asset categories not at fair value (23 trillion euros or 56 percent of EU bank balance sheets) impairment should be measured on the basis of future cash flows, it said. 2. The Commission said several valuation options have been applied successfully in the past, noting simple reverse auctions were useful with assets where market values were reasonably certain, but they failed with more complex assets in the U.S.
Amazing that this has not be reported more widely and that there is not more attention being paid to this. This is huge guys, the extent of the crisis is many order of magnitude greater than what has heretofore been reported by any organizations around the world. This story for some reason has not yet hit US wires but it will eventually once people start to realize the implications. You have been warned.
Let's wait to read the actual paper, shall we? It's coming out in two weeks. If there's anything I have learned during all this, is that one should never trust headlines and hearsay.
If there is anything I have learned it is that whatever information we get is always too little too late and too rosy. Evidently this information was not for public consumption at this time but it came out and those of us who recognize its import have a chance to protect our assets.