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The run on banks in Greece in progress; Euro collapse coming?

Discussion in 'Sports and News' started by The Big Ragu, Jun 13, 2012.

  1. The Big Ragu

    The Big Ragu Moderator Staff Member

    http://www.cnbc.com/id/47793980

    About a $1 billion a day being withdrawn from Greek banks ahead of the vote next week that will pretty much determine if they stay in the Euro or outright default and end up with a worthless drachma.

    Meanwhile, everyone strong-armed Spain into taking a bailout (without having to call it a bailout) over the weekend, in the hopes that if there is panic after the Greek vote there isn't a run on banks there. But unlike the past bailouts to Greece, Portugal and Ireland, which were actually half-assed in comparison, the reassurance didn't last more than two days. Yields on Spanish 10-year notes hit a record high since the Euro yesterday at 6.8 percent or so. That is unsustainable for Spain. They will default unless they can figure out a way to calm people into thinking the risk is less, and bring that yield down. At the same time, the yield on the Italian 10-year hit 6.2 percent, and likewise Italy will get crushed under the weight of that yield, because its ability to pay back on the debt they are already sitting on can't keep up with that much interest.

    What was most interesting about the Spanish bailout to me, was how despite the good face everyone put on it (Christine Lagarde, Tim Geithner, Wolfgang Schaeuble all hailing it), there was no hiding that panic was going on behind the scenes. Spain was resisting. They needed to get it done ahead of the Greek elections, though, because it was the only chance of possibly (but no assurance) keeping faith in Spain if Greece goes down, to avoid mass withdrawals from its banks, which are in serious trouble. I can't imagine the threats (from President Obama, for example) and strong arming that was tried to try to force Spain to play ball.

    The Spanish for their part, knew they had more leverage than a lot of people realize. A lot of leverage, because tThey were threatening to destroy the Euro. So they basically got a promise for $125 billion with few conditions attached to it. Compare that to the tough talk about austerity that Greece has continually heard or all the conditions attached to the Irish bailout. And on top of the handout with few conditions, Spain insisted on it somehow not being called a bailout, even though that is exactly what it is.

    The reason the markets aren't buying it is because you can slap a coat of paint on something, but it only hides the rotting wood underneath. The money doesn't fix Spain's problems, and in fact, what it does is add $125 billion more debt (that also adds to the debt of other European nations, too) to Spain's balance sheet, which is already drowning in debt. So they bought time by putting themselves further into debt, which reassures no one.

    I don't see how Greece is not going to vote to leave the Eurozone. Then the question becomes, with such little faith in Spain and Italy (as judging by the yields on their bonds), what keeps runs from banks in those countries from happening. And if that happens, Spain's banking system which is overleveraged with horribly bad debt is going to bring it down to a topple, and the exposure to it is spread throughout Europe and the rest of the world.

    Oh, and cranberry, no, I don't "root" for this. You know I have been posting on here about this topic for what, two years? -- worldwide debt and what the endgame might be -- and decrying the behavior that led to it. That isn't someone rooting for it. It's someone who saw a lot of shitty decision-making made to put off dealing with consequences, and being genuinely upset about it. Given what I saw, I could also suggest ways to try to insure yourself against the potential fall out of something bad happening, and I have done that on here, too. There is a difference between seeing something happening and posting about it, and "rooting" for it, as you put it a few times.
     
  2. LongTimeListener

    LongTimeListener Well-Known Member

    I predict all ends well:

    [​IMG]
     
    Last edited by a moderator: Dec 15, 2014
  3. The Big Ragu

    The Big Ragu Moderator Staff Member

    LTL, Would be wonderful. Who are all the townspeople passing the hat around to make Spain and Italy whole because of all the love there is for them in Bedford Falls, and even if that was the case, where is their money coming from?
     
  4. dixiehack

    dixiehack Well-Known Member

    Nobody has much paid attention, but I wonder what the effect would be on BBVA Compass, which employs a huge number of people locally and has become a big player in the Southwest.
     
  5. LongTimeListener

    LongTimeListener Well-Known Member

  6. Stitch

    Stitch Active Member

    Eh. Poke me when the sky really is falling.
     
  7. The Big Ragu

    The Big Ragu Moderator Staff Member

    My guess is that Compass would remain relatively isolated from the problems with BBVA, as it isn't directly exposed to the bad mortgages that are threatening BBVA (and the rest of Spain's banks). It also falls under U.S. regulatory authority and I am sure there are firewalls that insulate it from anything bad that happens to BBVA. At worst, if BBVA went under, I would imagine that Compass would be one of its good assets that would remain operational and then be spun off or sold in order to raise something for creditors.

    I have followed the Spanish banks pretty closely -- have been for the last year and a half. I even posted on here that I was looking for ways to short just Spanish and Italian banks when there was way too much positive sentiment early in 2011. BBVA, with Banco Santander, is one of the big boys. They are actually in better shape than the tier of banks right below, which are teetering under the weight of bad mortgages and overleveraged balance sheets. Spain had a real estate boom that made ours look quaint. Northern Europeans created a bubble in the market and the banks underwrote the speculative frenzy. Now everyone is defaulting on those loans. BBVA's debt has really degraded recently, but they are not quite on the bring of insolvency. The main problem for them is that unemployment is through the roof in Spain, they are in a recession that everyone expects to get worse and the government is in debt to its eyeballs. That is a formula for no economic growth, a lot of panic, bad debts getting worse, and who knows what other things that could drag the banks down.

    Worst case, though, I'd imagine Compass Bank would be spun back off or sold. It's one of 50 largest banks in the U.S. and as far as I know is in decent shape.
     
  8. dixiehack

    dixiehack Well-Known Member

    They've tended to have a quiet track record of competence, in sharp contrast to cross-town neighbor Regions. People here were shocked when BBVA kept its word and left US operations headquartered in Birmingham. A sale to someone else means yet more banking jobs gone in a town that used to be surprisingly strong in that area.
     
  9. Herbert Anchovy

    Herbert Anchovy Active Member

  10. The Big Ragu

    The Big Ragu Moderator Staff Member

    If I have that merger straight, BBVA owned a few small banks in the U.S. and bought Compass to be sort of like a parent for an expanded BBVA operation into the U.S. So staying headquarted in Birmingham would have been the way to go -- making it the center of BBVA U.S. operations.

    Compass was a great choice, I believe, even though I suspect they did it unwittingly, because they bought it before the mortgage collapse. As it turned out for them, Compass had done a relatively good job of not making bad loans. So in 2008 when a lot of small banks were getting socked, Compass was in relatively good shape and actually growing as other banks were shrinking.
     
  11. The Big Ragu

    The Big Ragu Moderator Staff Member

    http://www.bbc.co.uk/news/business-18438044

    http://www.businessweek.com/news/2012-06-14/spain-yield-reaches-euro-record-as-rating-cut-before-italy-sale

    Spanish bond yields hit the magic mark: 7 percent. At that yield they WILL default without a sovereign bailout from somewhere. Their interest payments are too great.

    Moody's has downgraded their debt again. They said the bailout would increase the country's debt burden even more and said they could reduce their debt to junk within the next three months (it is down to one notch above junk).

    Italy has a bond auction later today. It will be interesting to see what demand looks like, and what kind of yield we start looking at for Italy. That is already where attention has turned. This is fear of contagion and the spiraling of things could happen all at once when it starts.
     
  12. Ben_Hecht

    Ben_Hecht Active Member

    This could be a really bad day, worst-case.
     
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