Prepare for the "The Kick The Can Down The Road Crash of 2011"

French banks braced for credit-rating downgrade: sources


Lionel Laurent
PARIS | Sat Sep 10, 2011 2:08pm EDT
(Reuters) - France's top banks are bracing themselves for a likely credit rating downgrade from Moody's, sources close to the situation said on Saturday, further complicating their efforts to assure investors they are riding out the tensions in funding markets.

Several sources said on Saturday that BNP Paribas (BNPP.PA), Societe Generale (SOGN.PA) and Credit Agricole (CAGR.PA) were expecting an "imminent" decision from the ratings agency, which first put them under review for possible downgrade on June 15.

Moody's at the time had cited French banks' exposure to Greece's debt-stricken economy as the reason behind the review, which was due to last three months. Outside commentators said the ratings were ripe for a downgrade because of rising borrowing costs in the face of sovereign debt turmoil.

"The decision is imminent," one Paris-based source said. "It will probably be a downgrade but it's not certain yet."

France's lenders -- two of which own local banks in Greece -- have the highest overall bank exposure to Greece, according to the Bank for International Settlements. They have begun to take writedowns on their Greek sovereign debt holdings as part of a new rescue package but some say not aggressively enough.

Greece vowed on Saturday to stay the course of austerity and avoid bankruptcy as anger at the country's failure to meet fiscal targets under its EU/IMF bailout reached boiling point.

The three French banks and Moody's declined to comment for this story. The agency said in June it was considering cutting BNP and Credit Agricole by one notch and SocGen by up to two notches because of the level of state aid it received in the past.

Moody's long-term senior debt ratings for BNP, SocGen and Credit Agricole are respectively Aa2, Aa2 and Aa1, all assigning high grade creditworthiness.

A downgrade, though well-flagged, would be another reminder of deteriorating market sentiment as investors discount economic slowdown in Europe, tougher capital requirements on banks and the unfolding drama in Greece and the euro area.

Sovereign debt turmoil has crushed European banks' share prices since the start of the summer and pushed up their cost of borrowing, especially from U.S. dollar money markets.

French banks, seen as particularly reliant on short-term funding, have been among the hardest hit. SocGen shares are down 57 percent since the end of June and are flirting with levels not seen since March 2009, when Europe was in recession.

SocGen, Credit Agricole and larger arch-rival BNP -- which together held around 6 billion euros ($8 billion) of Greek sovereign debt at end-March -- recently sought to reassure investors on their funding positions by giving extra disclosures on liquidity, but that has failed to stem the sell-off.

Some say the only way out is for Europe to recapitalize its battered banking sector to better absorb sovereign debt losses and to cope with tougher capital requirements. IMF chief Christine Lagarde has been a vocal proponent of such a measure.

 

UBS boss says some banks may need state help: report




ZURICH | Sun Sep 11, 2011 11:25am EDT
(Reuters) - Some banks may have to get help from the state as plunging share prices could make it difficult to raise capital, UBS (UBSN.VX) chief executive Oswald Gruebel told Swiss newspaper Sonntag in an interview published on Sunday.

Gruebel said his comment did not apply to the top two Swiss banks as Credit Suisse (CSGN.VX) and UBS were now less likely, compared with 2008, to be affected by European banks that found themselves in difficulty given that interbank trading was no longer as important.

Gruebel said future returns from investment banking were unlikely to be 20 percent and above but around 10 percent, adding this also applied to the big players on Wall Street.

UBS itself had to be rescued by the state in 2008 after massive losses on toxic assets.

Gruebel criticized the Swiss National Bank's recent move to set an exchange rate cap on the Swiss franc at 1.20 euros.

"We, as a small country with the franc, can't dictate an exchange rate against the euro. That is impossible in the long term. Despite this, I hope the effect that has been reached is sustainable," he said.

Separately, Credit Suisse chairman Urs Rohner, interviewed by NZZ am Sonntag, welcomed the SNB move to cap the franc.

"The franc was massively overvalued, as the actual purchasing power of the euro is estimated at about 1.35 francs to 1.40 francs," Rohner was quoted as saying.

Credit Suisse analysts expect the euro to rise to 1.25 francs in the next three months and to 1.30 francs in the next 12 months, Rohner said.

 

Germany May be Ready to Surrender in Fight to Save Greece
Q
By Simon Kennedy and Brian Parkin - Sep 11, 2011 11:01 AM ET

Sept. 9 (Bloomberg) -- Richard Lacaille, chief investment officer at State Street Global Advisors, talks about Juergen Stark's resignation from the European Central Bank’s Executive Board. Lacaille also discusses the euro-area debt crisis and investment strategies. He talks with Andrea Catherwood on Bloomberg Television's "Last Word." (Source: Bloomberg)
Germany may be getting ready to give up on Greece.
After almost two years of fighting to contain the region’s debt crisis and providing the biggest share of three European bailouts, Chancellor Angela Merkel is laying the ground for what markets say is almost a sure thing: a Greek default.
“It feels like Germany is preparing itself for a debt default,” Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London, said in an interview. “Fatigue is setting in. Germany could be a first mover or other countries could be preparing too.”
Officials in Merkel’s government are debating how to shore up German banks in the event that Greece fails to meet the budget-cutting terms of its aid package and is unable to get a bailout-loan payment, three coalition officials said Sept. 9. The move capped a week of escalating German threats that Greece won’t get the money unless it meets fiscal targets and investors raising bets on a default.
Ring-fencing their banks and a hardening of rescue terms risk isolating Germany and unnerving global policy makers already fretting that the region’s political tussles are roiling markets and threatening growth. Underscoring the tone of weekend talks of Group of Seven finance chiefs, U.S. Treasury Secretary Timothy F. Geithner told Bloomberg Television that European authorities must “demonstrate they have enough political will” to end the crisis.
Credit Risks
European bank credit risk surged last week to an all-time high and the euro fell by the most against the dollar in a year. Investors have doubts whether Greece, whose two-year notes now yield 57 percent, will implement austerity moves fast enough to get a sixth payment from last year’s 110 billion-euro ($151 billion) bailout.
The Greek government’s top priority is “to save the country from bankruptcy,” Prime Minister George Papandreou said in a Sept. 10 speech in the northern Greek city of Thessaloniki. “We will remain in the euro” and this “means difficult decisions,” he said.
More evidence of rifts at the heart of policy making was exposed with the unexpected Sept. 9 announcement that Juergen Stark, a German, will quit the European Central Bank’s executive board over his opposition to the ECB’s purchases of bonds from debt-laden countries.
“Stark’s departure could be seen by financial markets as another indication of growing disenchantment in Germany towards the euro,” said Julian Callow, chief European economist at Barclays Capital in London. “This could complicate Germany’s involvement in additional bailout programs.”
Marseille Gathering
At the G-7 gathering in the French port of Marseille, ECB President Jean-Claude Trichet and European Union Economic and Monetary Affairs Commissioner Olli Rehn said they knew nothing about the talk in Germany of the so-called Plan B to protect banks. French officials said they weren’t working on a parallel proposal and Bank of France Governor Christian Noyer said his country’s banks have the capital to withstand a Greek default.
BNP Paribas (BNP) SA, Societe Generale (GLE) SA and Credit Agricole SA (ACA), France’s largest banks by market value, may have their credit ratings cut by Moody’s Investors Service as soon as this week because of their Greek holdings, two people with knowledge of the matter said on Sept. 10.
Moody’s said in June that the three banks were placed on review to examine “the potential for inconsistency between the impact of a possible Greek default or restructuring,” and the companies’ current rating levels.
Deutsche Bank
German banks were the biggest holders of Greek government bonds at the end of 2010 with $22.7 billion, according to data from the Bank for International Settlements. As of June 30, Deutsche Bank AG, Germany’s biggest bank, had 1.15 billion euros of net sovereign risk to Greece, down from 1.6 billion euros at the end of 2010.
The aim of the contingency plan is to shield German banks from losses from a possible Greek default, which has a more-than 90 percent change of happening, prices for insurance against default show.
The plan involves measures to help banks and insurers that face a possible 50 percent loss on their Greek bonds if the next portion of Greece’s bailout is withheld, said the three officials, who declined to be identified because the deliberations are being held in private. The successor to the government’s bank-rescue fund introduced in 2008 might be enrolled to help recapitalize the banks, one of the people said.
Merkel Policy
The discussions aren’t intended to shove Athens out of the euro, said Klaus-Peter Flosbach, budget-policy spokesman of Merkel’s Christian Democratic Union and the Christian Social Union in parliament.
“It would be of central importance to keep the possibility of contagion in the euro zone as low as possible,” Flosbach said in an e-mail. “In any case, we’re not looking into pushing Greece out of the euro zone.”
Fredrik Erixon, head of the European Centre for International Political Economy in Brussels, said Germany’s concern is broader than Greece, which is in its third year of a deepening recession, and centers on how its banks and economy would cope if the debt crisis spreads.
“Germany is preparing for the worst, which is that the crisis in the euro zone is going to be much bigger for everyone,” Erixon said.
German Critics
German lawmakers, who are scheduled to vote Sept. 29 on a second Greek aid package and revamped rescue fund, stepped up their criticism of Greece after an international mission to Athens suspended its report on the country’s progress two weeks ago.
“There can be no doubt” that Greece must fulfil the terms of aid to receive it, German Finance Minister Wolfgang Schaeuble said in Marseille. “Everybody must stand by the agreements.”
With a loss in her home state of Mecklenburg-Western Pomerania this month, Merkel’s coalition has been defeated or lost votes in all six state elections this year as voters reject putting more taxpayer money on the line for bailouts. Merkel has also antagonized markets and fellow leaders by initially holding out against aid for Greece and demanding investors pay a share of the assistance.
Fifty-three percent of Germans oppose further aid for Greece and wouldn’t save the country from default unless it fulfils terms of the rescue agreement, Bild am Sonntag reported, citing an Emnid poll of 503 respondents conducted Sept. 8.
Greek Response
After European markets closed last week, Greek Finance Minister Evangelos Venizelos dismissed “rumors” of a default and said his nation is committed to “full implementation” of the terms of the July accord for a second aid package.
Venizelos told reporters in Thessaloniki yesterday that budget measures, including a special levy on real estate, will be enough to meet targets set for 2011.
The market fallout served as the backdrop for the G-7 talks where Canadian Finance Minister Jim Flaherty said Europe’s woes were the “number one” topic and that Greece may even need to quit the euro if it can’t consolidate its budget. Geithner said authorities “need to do whatever they can do to calm these pressures” and that rich European nations need to provide “unequivocal” support for their weak neighbors.
G-7 officials vowed to “take all necessary actions to ensure the resilience of banking systems and financial markets,” and to make a “concerted effort” to support a flagging world economy. They detailed no new policies.

 

and more stress.... french banks down 10% today.


I think mkts are close to the plastic phase of the stress/strain curve.

 

....and yet more french bank carnage.

 

and now more american bank carnage GS MS BAC et al.

The Euro falling apart has begun the inverse USD move that pushed markets higher in the 2003-2011 period.

Lets see how the other side of the trade likes it.

 

Buffett Says European Bank(s) Have Asked Him For Money


http://www.zerohedge.com/news/buffett-says-european-banks-have-asked-him-money


Soon, banks will ask justin bieber to save them

 

http://cdn.lolcaption.com/wp-conten...jobbs-bank-loan-joke-apple-microsoft-haha.jpg

 

wonder if we get some PPT action later this week? I'm sure they won't go down without a fight.

Probably due for a bounce before the inevitable decline.

 

well that was fun!


Now the inevitable decline