28 November 2011
Ted the Bear says Euro banks' survival is no picnic,
EuroZone bond rates over 7% are meant to be the breaking point - Italy's medium and long term rates are now closer to 8%. Friday's auction saw short term paper fetch almost 7%.
The EuroZone problem was meant to only see the bacon of Portugal-Ireland-Greece-Spain get fried. Italy was supposed to be too big to fail. When this was shown to be palpably untrue (we've been referring to the GIPSIs since 2008) then the received wisdom was that the core would be OK. We doubted this since that time, citing the gargantuan banking sector issues in Belgium, Austria, Holland, France, Germany and Switzerland (several analysts who I respect insist that Switzerland has done enough to dodge bullets so I might have to revise that but for now I remain skeptical).
Dexia was supposed to be an isolated event but right now I can't name a single EuroZone bank that is safe enough to be entrusted with my money or that of clients. There is some parked with Deutsche but not for much longer as the iconic German bank's survival is very, very much in doubt if the crisis spins totally out of control because the real news this last week is that international banks have reached the level of distrust with other banks that historically indicates a credit crunch or liquidity crisis. This is measured by the risk premium charged to other banks over and above T-bill yields. The so called TED Spread broke the historically significant 50 watershed on Friday - an increase in perceived interbank risk of 254% over the last year. This is the first sign of such extreme widespread banking sector risk since Le Crunch/the GFC.
Source www.bloomberg.com
We've been warning investors and depositors to get out of Euros for some time. Now the advice is get out of EuroZone banks too. Having said that, investors need to be wary of jumping from frying pans into fires. Just because a bank is outside the EZ doesn't necessarily mean that it's safe.
And still the banks haven't given up on the notion that they're in charge and the following piece from the perfectly formed Michelle Caruso-Cabrera is worth inclusion because it highlights that and because of her unintentionally comic description of tomorrow's planned meeting in Brussels - our final piece of advice today would be to avoid the area - traffic congestion could be 11,329,618 times worse than usual!
"A creditors' committee, headed up by Charles Dallara of the Institute of International Finance, has been formed and will meet with Greece on Tuesday in Brussels.
The IIF is a bank lobbying group that does not own any Greek debt but represents many financial institutions that do. Dallara represented the private sector in negotiations with German Chancellor Angela Merkel last October.”