The Entire Dutch Banking System is on a Government Lifeline

You thought Hollande and more generally speaking Nordic countries had a better fiscal state? and no real estate bubble? And their banking system was safe? And they would save the Euro? Think again.

Apparently, there has been a proper depositor run on this bank, and investors didn't want to put more capital in the institution. That says quite a lot on the dire state of this bank.

The good news is, this time, shareholders and subordinate bond holders have been wiped out.

Still, overoptimism in state interventionism and denial of reality persist as experts said SNS Reaal's near-collapse didn't signal a crisis for the wider Dutch banking sector.

The WSJ reports (via GoogleNews):

AMSTERDAM—The Dutch state Friday nationalized troubled banking and insurance company SNS Reaal NV, following unsuccessful talks with private investors on a capital boost after heavy outflows of deposits had pushed the lender close to collapse in recent days.

The Dutch state will inject €2.2 billion ($2.99 billion) into the company, write off €800 million from an earlier bailout and €700 million on the value of SNS Reaal's toxic property loans. It will also provide an additional €6.1 billion in loans and guarantees to put the firm on a sound footing. The burden to taxpayers will be eased somewhat through a €1 billion contribution from the other Dutch banks through a special levy.

The government rescue was inevitable after SNS Reaal suffered a run on deposits and failed to raise capital on its own, Finance Minister Jeroen Dijsselbloem said. "Without a solution, SNS Reaal would have gone bankrupt, and put the financial system in severe and immediate danger."

The truth is that the bankruptcy would have made the financial system stronger. This action from the government made the country's balance sheet much weaker, the economy as well, and kept an insolvent company which should have disappeared in business, to compete against sounder institutions. 

The nationalization deals a fresh blow to public finances at a time when the Netherlands, considered a "core economy" in the euro zone, is battling to meet European Union budget targets. [...]

The Dutch government now owns two of the largest banks in the Netherlands, following the rescue of ABN Amro Bank NV in 2008. The biggest bank by assets, ING Groep NV has yet to repay a government bailout.

"It is worrisome. Nearly the entire Dutch banking system is now on a government lifeline," said Arnoud Boot, a professor of corporate finance at the University of Amsterdam.

SNS Reaal has more than €30 billion in deposits and regulators have put it in the "too-big-to-fail" category. The company, based in the city of Utrecht, was groaning under steep loan losses on real-estate projects in the U.S., Spain and the Netherlands. The losses have eroded its capital base and ability to repay a government bailout received in 2008.

The company last summer entered talks with private investors to raise capital and avoid nationalization. But most parties—including a consortium of Dutch banks—were wary of getting involved because of the distressed property loans.[...]

The government said it used a new bank-intervention law, aimed at giving the state more powers to intervene in troubled banks and protect depositors. By wiping out shareholders as well as subordinated-debt investors, it took a drastic step, analysts said. "It certainly [is] the harshest treatment to bondholders for any large European bank," BNP Paribas said.

[...] Still, experts said SNS Reaal's near-collapse didn't signal a crisis for the wider Dutch banking sector. "The problems at SNS Reaal weren't new. They have been simmering for years, but they were never dealt with," said Harald Benink, professor of banking and finance at Tilburg University.

Spain Default Probability at 100% — To Take the Whole European Financial System Down

Graham Summers from Phoenix Capital provides the nice summary of how deep in trouble Spain is, and how the default of Spain — a 100% probable event — will bring the whole Europe and its banking system to its long overdue collapse:

The fact remains that the EU will break up in time. And it will likely be Spain that brings this about.
The reasons? Among other things:

1. Spain's private Debt to GDP is above 300%.
2. A huge portion of Spain's banking system (representing over 50% of mortgage loans AND deposits) was totally unregulated up until just a few years ago.
3. Spanish banks are drawing over €400 billion from the ECB on a monthly basis (up from €377 in June) to fund their liquidity needs.
4. Spanish banks are now net sellers of Spanish sovereign bonds (leaving the ECB as the only buyer in the market)
5. Spain's banking system has lost 18% of its deposits in the last 10 months due to a staggering bank run.
6. The economy of Spain is a disaster with total unemployment over 25% and youth unemployment above 50%.
7. Spain is now facing a constitutional crisis with various regions looking to secede if they don't receive bailouts from the Federal Government "without conditions."
8. Spanish banks need to roll over (meaning renew terms on) more than 20% of their bonds this year.

So Spain will suffer a collapse, most likely of its banking system resulting in a sovereign default (barring a bailout). When this happens, some €1 trillion+ worth of collateral (still rated AAA by EU banks) will be sucked out of the system.

Nigel Farage: The euro Titanic has now hit the iceberg

Very interesting speech from Nigel Farage earlier today at the European Parliament, available on YouTube. The interesting part is how this bailout of Spain will actually further weaken Italy, which is already on the brink of collapse and a confirmation of something we had previously discussed on this blog: a Greece default of Euro-exit would make the ECB bankrupt.

Here's the transcript, with my highlights:

"Another one bites the dust. Country number four, Spain, gets bailed out and we all of course know that it won't be the last. Though I wondered over the weekend whether perhaps I was missing something, because when the Spanish prime minister Mr Rajoy got up, he said that this bailout shows what a success the eurozone has been.

And I thought, well, having listened to him over the previous couple of weeks telling us that there would not be a bailout, I got the feeling after all his twists and turns he's just about the most incompetent leader in the whole of Europe, and that's saying something, because there is pretty stiff competition. 

Indeed, every single prediction of yours, Mr Barroso, has been wrong, and dear old Herman Van Rompuy, well he's done a runner hasn't he. Because the last time he was here, he told us we had turned the corner, that the euro crisis was over and he hasn't bothered to come back and see us. 

I remember being here ten years ago, hearing the launch of the Lisbon Agenda. We were told that with the euro, by 2010 we would have full employment and indeed that Europe would be the competitive and dynamic powerhouse of the world. By any objective criteria the Euro has failed, and in fact there is a looming, impending disaster. 

You know, this deal makes things worse not better. A hundred billion [euro] is put up for the Spanish banking system, and 20 per cent of that money has to come from Italy. And under the deal the Italians have to lend to the Spanish banks at 3 per cent but to get that money they have to borrow on the markets at 7 per cent. It's genius isn't it. It really is brilliant. 

So what we are doing with this package is we are actually driving countries like Italy towards needing to be bailed out themselves.

In addition to that, we put a further 10 per cent on Spanish national debt and I tell you, any banking analyst will tell you, 100 billion does not solve the Spanish banking problem, it would need to be more like 400 billion. 

And with Greece teetering on the edge of Euro withdrawal, the real elephant in the room is that once Greece leaves, the ECB, the European Central Bank is bust. It's gone. It has 444 billion euros worth of exposure to the bailed-out countries and to rectify that you'll need to have a cash call from Ireland, Spain, Portugal, Greece and Italy. You couldn't make it up could you! It is total and utter failure. This ship, the euro Titanic has now hit the iceberg and sadly there simply aren't enough life boats."

Hugh Hendry on a 90 min Panel — Is it time to invest in Europe?

Milken Institute conference 2012 hosted many sessions, and Hugh Hendry was part of the guests, talking at a panel about investing in Europe, available on YouTube and embedded below: 

Hugh speaks at:

• 0 hour 12 min
• 0 hour 30 min
• 0 hour 46 min
• 0 hour 52 min 45 sec
• 1 hour 02 min 30 sec
• 1 hour 10 min 20 sec

Greece’s biggest anti-bailout party, Syriza, said for the second time in as many days that it won’t join a unity government — ECB’s Honohan Says Greece Euro Exit Can Be Managed

Greece's anti-bailout party is sticking to its guns and won't join a unity government. It might become one of the first time in recent history that democratically elected people would actually respect their campaign promises!

(Bloomberg) May 13, 2012 — Greece’s biggest anti-bailout party, Syriza, said for the second time in as many days that it won’t join a unity government, pushing the country closer to new elections that have sparked concerns about a euro-area exit. 

“Syriza won’t betray the Greek people,” leader Alexis Tsipras said in statements televised on state-run NET TV after a meeting brokered by President Karolos Papoulias between the party and the leaders of the New Democracy and Pasok parties. “We are being asked to agree to the destruction of Greek society.”

The paragraph just above from Alexis Tsipras is a lifetime lesson in politics: "Syriza won't betray the Greek people": I hope it doesn't and stick to their campaign promises, but what Alexis Tsipras is asking for, is for Syriza to actually join the unity government, to save the banks, (and hence he's calling them to betray the people and their promises). And he calls that "not betraying the Greek people". 

The Greek society has been destroyed by the last 70 years of people like him leading the country to its financial and democratic bankruptcy. Yet, he's trying to push the burden on Syriza, and pretending they are the ones destroying their society.

Lifetime lesson for me, and I hope for everybody who's reading this. One thing you can be sure of, is that the media and history books will convey only Tsipras interpretation, instead of the truth.

After printing hundreds of billions of Euros, trying to save European banks from a Greek default, the money is down the sink now, and it seems like the ECB finally realised that this battle against the inevitable won't be won, and that the markets will prevail. I hope Trichet is watching this mess, the result of his arrogant, ignorant, and destructive policies.

It is now qualified as a "non-attractive" event, while 2-3 years ago, it was "the end of the world".

(Bloomberg) May 12, 2012 — A Greek exit from the euro could be “technically” managed yet would damage confidence in the monetary union, said European Central Bank Governing Council member Patrick Honohan. 

A departure by Greece would be “a rather destabilizing kind of event” for the rest of the euro area and all sides are working to try to avoid it, Honohan told a conference in the Estonian capital, Tallinn, today. “It is not necessarily fatal, but it is not attractive.”

Spain to Intervene as Asturias' Local Government Refuses to Adopt Budget National Budget Commitments — 72,000 protesters took to the streets across Spain yesterday — Spain Will Miss Budget-Deficit Goals Through 2013

Some interesting news for a Sunday...

(Bloomberg) May 13, 2012 — Spain may intervene in the finances of the northern Spanish principality of Asturias because local politicians have failed to form a government that agrees on cuts to its budget deficit. 

“Asturias is especially worrying because the interim situation of the government impedes it from adopting revenues and expenses commitments,” said the Budget Ministry in a statement yesterday. The Spanish government may apply corrective measures or even takeover the region’s accounts, said the ministry. 

Asturias’s interim government, led by Francisco Alvarez- Cascos former Peoples Party minister, has been negotiating with other parties since March in an effort to form a coalition. Spain’s regions control more than a third of public spending and their deficit was almost twice their target last year at 2.9 percent of gross domestic product. That pushed the nation’s shortfall to 8.5 percent of GDP compared with a 6 percent European Union limit. 

Spain approved in March a new budget stability law allowing it to force all regions to comply with deficit reduction goals.

(Bloomberg) May 13, 2012 — Spanish police made 18 arrests, mostly for public order offences, in Madrid during protests repeated across the country over economic discontent, the Interior Ministry said.

Moves to dissolve the protest in Puerta del Sol, in downtown Madrid, ended earlier today, the ministry said. The deadline to end the protest had been 10 p.m. yesterday, Europa Press reported.

About 72,000 protesters took to the streets across Spain yesterday, including 30,000 in Barcelona and 22,000 in Madrid, the Associated Press said, citing police. There were other protests in Bilbao, Malaga and Seville, AP reported.

The protests commemorated the anniversary of last year’s demonstrations against youth unemployment and the handling of the international financial crisis.

(Bloomberg) May 11, 2012 — Spain will miss its budget-deficit target this year and rack up a shortfall that is more than double its goal in 2013 as unemployment exceeds 25 percent, the European Commission said.

Spain’s overall budget deficit will amount to 6.4 percent of gross domestic product this year and 6.3 percent in 2013, missing the targets of 5.3 percent and 3 percent respectively, the Commission said in its spring forecasts today in Brussels. It sees the economy contracting 0.3 percent in 2013, a more pessimistic view than the government’s, pushing unemployment to 25.1 percent. 

Spain is implementing the deepest austerity measures in at least three decades including tax increases and savings in health and education. Concerns over Spain’s deficit and the government’s ability to overhaul lenders without overburdening public finances have helped reignite the sovereign debt crisis, sending Spanish 10-year borrowing costs to more than 6 percent.

Violence Breaks in Italy — Italy on maximum alert for terrorism after recent attacks targeting the tax-collection agency Equitalia

Nothing to add to the Bloomberg report except that Spain and Italy are approaching fast the wall, and no one seems to care much in equity and forex markets.

(Bloomberg) May 13, 2012 — Italy is on maximum alert for terrorism after recent attacks targeting the tax-collection agency Equitalia and the shooting of Ansaldo Nucleare Chief Executive Officer Roberto Adinolfi, la Repubblica reported, citing Interior Minister Anna Maria Cancellieri. 

Thirty anarchists are the focus of investigators and the army is committed to defending vulnerable targets, Cancellieri told Repubblica. Her comments come after two Molotov cocktails were placed outside Equitalia’s headquarters in Livorno, Italy yesterday, with one exploding, Repubblica reported. 

That follows the discovery of a parcel bomb at Equitalia’s Rome headquarters on May 11, news service Ansa reported. Adinolfi was shot in the legs by two assailants on a scooter in Genoa on May 7, Repubblica reported then, describing the injury as non life-threatening.

European Financial Companies to Fund European Ratings Agency — Denmark Is a Massive Subprime Base of Mortgages and Hosting One the Biggest Real Estate Bubbles in the World

I guess when you're not happy with the ratings you have because you cannot control the rater, you should fund your own rating agency. Note that in the US, only rating agency has dared to lower the rating of Uncle Sam, which gives them their oligopoly and hence funds their very useless but very lucrative business.

(Reuters) - European financial companies have agreed to back the creation of a European Rating Agency to compete with Standard & Poor's, Moody's and Fitch, a strategy consultants involved in setting up the new agency said on Thursday. 

"Following intensive talks conducted across Europe, a number of financial companies have now agreed to support the establishment of a global rating agency of European origin," said Markus Krall, a partner at Roland Berger Strategy Consultants. 

"We will soon wrap up the fundraising and complete operational realization of the new independent agency. We are currently in the process laying the institutional and corporate groundwork," he added, declining to name the companies that will provide the financial backing. 

A number of organisations are evaluating how to launch a new European rating agency after European policymakers criticised Standard & Poor's, Moody's and Fitch during the euro zone debt crisis, saying they have been too quick to cut the credit ratings of indebted European Union states despite bailouts and austerity drives. 

In a recent move, S&P downgraded the credit ratings of nine euro zone countries, stripping France and Austria of their coveted triple-A status. 

Markus Krall will relinquish his role as senior partner at Roland Berger to become the founding chief executive of the new agency, Roland Berger said in a press release. 

Efforts to launch a European rating agency are also being made by the Bertelsmann Foundation which is seeking to overhaul the way rating agencies rate sovereign debt.
The Bertelsmann Foundation has said it will lead a group of international experts to develop a model for a non-profit rating institution. 

The foundation, based in Guetersloh, Germany is a politically nonpartisan think tank dedicated to making an "enduring contribution to society" including a "just and efficient economic system." 

Funded from its income from shares in publishing giant Bertelsmann AG, the foundation has offices in Brussels and Washington. (Reporting by Edward Taylor; Editing by Mark Potter)

Personally, I would be more supportive of simply ditching the ratings agencies, or making them a creation of the free market: that is, they should be created by entrepreneurs, and they should be selling their reports to the investors who want to invest in company X.

Currently, ratings agencies are an oligopoly created the US government (and the Chinese) ; and company X fund the report (basically, meaning that there's a massive conflict of interest).

Looks like investors in Denmark are getting there, but because their investments have been downgraded (meaning they are about to lose or have already lost money as a result of falling prices of their bonds).

The report below contains a few extra interesting points:

• Denmark has the 3rd largest mortgage bond industry in the world, for such a tiny country — expect a massive bubble to pop
• Investors don't care about the ratings, because those mortgages are safe — we all know how this story ends
• Marc Stacey explains why ratings agencies have to herd — meaning they are basically non-independent, due to conflicts of interest and lack of independent thinking as well.
• Adjustable-rate loans, as well as loans that delay principle payments by as much as 10 years, make up more than half Denmark’s outstanding homeowner debt — meaning that the whole mortgage industry is a massive subprime one, based on a pyramid of debt with delayed repayment 

(Bloomberg) — 2012-04-19 Denmark’s biggest banks are firing Moody’s Investors Service as they win assurances from some of the country’s biggest investors that the opinions of ratings companies hold limited value. 

Nykredit A/S, Denmark’s biggest mortgage lender and Europe’s largest issuer of covered bonds backed by home loans, terminated its contract with Moody’s on April 13, citing its “volatile” views. Danske Bank A/S (DANSKE)’s mortgage unit Realkredit Danmark A/S, the country’s second-largest home-loan provider, dropped Moody’s in June. Jyske Bank A/S, Denmark’s second- biggest listed bank, is looking into ending its dealings with Moody’s, according to Steen Nygaard, its head of treasury. 

“They have just crossed the line for fairness,” Nygaard said in an interview. “It’s not just that we have an opinion and if they rule against us, we are mad and walk away. It is about the fundamentals where we simply cannot follow Moody’s arguments.” 

Moody’s in June criticized Denmark’s $470 billion mortgage- bond industry, the world’s third largest after the U.S. and Germany, for failing to curb refinancing risks fueled by a mismatch in funding and lending maturities. Since then, Nykredit’s benchmark index of Denmark’s most-traded mortgage bonds has risen 6.3 percent to a record, signaling investors are disregarding the warnings. 

[...] “It’s not that ratings don’t matter. Of course they do,” said Inger Huus Pedersen, head of fixed-income investments at Hellerup, Denmark-based pension fund PKA, which oversees about $27 billion in assets. “These mortgage bonds, we feel pretty secure about. It’s an old system that’s gone through a lot, which is why I’m quite secure about the system. History has shown us that ratings agencies make mistakes as well.”

[...] In Denmark, Moody’s has been tougher on mortgage banks than other rating companies. [...] “Moody’s has shown a harsh stance on banks ratings compared to the other agencies,” said Marc Stacey, a fund manager at BlueBay Asset Management Ltd. in London, which oversees $42 billion in credit. “If Moody’s upcoming announcements show that they are an outlier, compared to where the other two rating agencies are, then you may find the Moody’s rating being dropped by more and more issuers.” 

[...] Denmark’s two-century-old mortgage market has moved away from traditional, fixed-rate 30-year loans and started offering adjustable rates in 1996 and interest-only loans in 2003 to attract more customers. The country is still struggling to emerge from a recession triggered by a burst housing bubble in 2007. A regional banking crisis claimed three lenders last year. 

“We agree there are risks, but they are less than when the house prices were in a bubble phase,” Nygaard said. “We cannot see the huge risk to the Danish economy. Jyske Bank is much stronger today that it was in 2007.” [...]  

While Denmark’s government debt is half the euro-area average at 44.6 percent of gross domestic product in 2012, the European Commission estimates, its private debt is the world’s highest. Household debt reached 310 percent of disposable incomes in 2010, according to Exane BNP Paribas. Danes’ savings, while high, are mostly “locked up” in hard-to-access pension and real estate assets, central bank Governor Nils Bernstein has said. 

Adjustable-rate loans, as well as loans that delay principle payments by as much as 10 years, make up more than half Denmark’s outstanding homeowner debt, according to the Association of Danish Mortgage Banks. Bernstein has urged the industry to phase out interest-only loans, which he says erode economic stability. 

Foreclosures jumped an annual 32 percent last month to a 17-year high, after Denmark’s economy fell into a recession in the second half and house prices sank an annual 8 percent in the fourth quarter. 

“What Moody’s is doing is putting pressure on the system, and that is not necessarily a bad thing,” said Peter Lindegaard, head of investments for Danica Pension, a unit of Danske Bank. Still, Lindegaard said Danica, which holds 20 billion kroner in mortgage debt, won’t exit Nykredit’s bonds after the lender dropped Moody’s. 

“We think we know as much as Moody’s about how the system works,” Lindegaard said in an interview. “We still deem them a very secure investment.”

Thanks for my friend Blbl for sending me the links a while ago! 

All You Need to Know from the French Presidential Elections in One Picture

The title of this magazine reveals the current social mood in France: "The Presidential campaign has revealed the hatred of the rich".

Three years into the (non-)recovery, and with one of the biggest real estate bubble of Europe (Spain, Ireland, etc. have already popped), it's funny to see that far left ideas still prevail, while people are supposed to be feeling rich with their million euro 2 bed apartments...

To be perfectly honest, this is not new, France has been a far left country since the French revolution in in 1789 and things have never really changed since then.

Quote of the Day: "Democracy a Little bit too Inconvenient for European Politicians"

I have a new found respect for Lauren Lyster and Dimitri over at Capital Account on RT TV, and have been talking about their show for the past several weeks.

They raise the right questions, have created a show that's outside of the mainstream media, think outside of the herd, and report accurately and interview with interesting questions.

The introduction phrase Lauren uses couldn't be more accurate, and more inline with my latest posts on the Rise of a Fascist in European Union (part 1 and part 2):

"Democracy a Little bit too Inconvenient for European Politicians", Lauren Lyster

On the 28th of Feb, Lauren interviewed Steve Keen about the Greek bailout, and the Zombie banking and Zombie government. While I don't agree with Steve Keen's point of view on Europe and political point of views, and solutions to the problem, it is still an interesting interview.

The show is available on YouTube.

The Rise of the Fascist European Union — part 2

This is a follow up from the post I titled The Rise of the Fascist European Union published just a few days ago.

Here are two more blow to democracy, but those who are supposedly trying to save it by destroying it.

Via Mish: Sarkozy refuses to agree to referendum on EU fiscal treaty.

Mr Sarkozy, who is trailing the socialist François Hollande in opinion polls seven weeks before the presidential election, came under pressure to promise a referendum on the pact after he pledged to consult the people directly on significant issues if re-elected.

“No,” he replied when asked on French radio yesterday if he would put the treaty to a public ballot. “If you’re dealing with a treaty with 200 articles, 250 articles, I can’t see how you’d formulate a clear question.”

And Merkel along with parliamentary complicity and in complete opposition of the people's opinion, pushed for the Greek bailout:

Feb. 28 (Bloomberg) -- Chancellor Angela Merkel won a parliamentary vote on Greek aid after warning German lawmakers that pushing Greece out of the euro would risk “incalculable” damage, defying a public backlash against more bailout funds. 

In a ballot that showed dissent in her coalition growing, 496 members of the lower house, or Bundestag, backed the 130 billion-euro ($174 billion) package yesterday in Berlin; 90 voted against and five abstained. While questions on Greece’s remaining in the euro “have their justification,” Merkel warned that a failure of the euro might endanger the European Union and the global economy. 

“Angela Merkel’s strident insistence that bailing out Greece is vastly preferable to the alternative was important,” Kit Juckes, head of foreign-exchange research at Societe Generale SA, said in a note today as he forecast the euro rising to $1.50. “Europe’s leaders have always stepped back from the edge of the abyss after flirting with disaster.”

Of course, the bankers being bailed out are supportive of these fascistic behaviours and ideas.