The growing pile of bailed-out, newly crushed European banks
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Despite receiving some of the most generous public subsidies in recorded history, Europe’s financial sector continues to hemorrhage. In Italy, the total market value of Monte dei Paschi di Siena, the world’s oldest bank and Italy’s third largest, is a fraction over €500 million, as its shares hover just 23 European cents above zero.
In the EU’s largest economy, Germany, the country’s only G-SIB (Global Systemically Important Bank), Deutsche Bank, has seen its stock plummet close to 90% in the last 10 years,from €117 to €12.30. This year alone it’s down well over 40%.
Take a quick glance at many of Europe’s smaller big banks and things look even grimmer. Four of Europe’s 29 “biggest” banks now share the dubious distinction of being penny stocks: Spain’s Bankia (€0.79), Italy’s Monte dei Paschi (€0.23), the National Bank of Greece (€0.21) and Bank of Ireland (€0.20).
These banks all share one thing in common: they have all been — or in the case of MPS will probably soon be — bailed out with public money. Put simply, they are the ugliest zombies on the market, unable to do anything but groan, just waiting for someone to put them out of their misery.
And now there’s a new kid on the block: Spain’s Banco Popular, whose shares plunged through the €1 threshold on Monday and have since slid to €0.94, its lowest point since 1990.
In many ways, the stock’s free-fall is no less impressive than Deutsche’s or Monte dei Paschi’s. Popular’s shares were worth over €15 in 2007, at the height of Spain’s insane real estate bubble, when almost a million new homes were being built each year in a country whose population was barely budging. That was more than in Germany, France and the UK combined.
One of the biggest, most reckless lenders during that period was Banco Popular. In the intervening years many of Spain’s biggest banks, including Santander, BBVA and La Caixa, have gradually, quietly unloaded a large share of their most toxic real estate assets, much of them on to the international markets. But Popular has been caught napping. Either that or its assets are so noxious that no self-respecting investor will go near them at just about any price.
Even nine years after the crash of Spain’s real estate boom, 26% of Popular’s total loan portfolio is still concentrated in the real estate and construction sectors. At 12.6%, the bank boasts the highest bad debt ratio of any Spanish bank, which, let’s face it, is no mean feat. It is also the country’s worst performing bank, according to the ECB’s latest stress test.
Popular is planning to spin off its own bad bank early next year, with around €6 billion euros in toxic assets. The listing is a last-ditch attempt to clean up its books. The problem is that at this rate it may not even be around early next year [read… Next “Bad Bank” to IPO in Spain, after 2 Prior IPOs Imploded]
The last big intervention to save Popular was in early summer when the bank, with the hired help of some of the world’s biggest investment banks (Goldman, Barclays, Citi, Deutsche Bank, Morgan Stanley, HSBC, Credit Suisse, Société Génerale and Nomura), raised €2.5 billion in capital, its third since 2012. That was just months after the bank’s then CEO Francisco Gomez had breezily reported that the bank had a “very comfortable core capital level” and “one of the best” leverage ratios in the sector.
Now the banking group has a new CEO — Pedro Larena, a former head of Deutsche Bank PBC International — and a market cap of €3.9 billion, roughly €2 billion less than the day after the capital expansion. In other words, shareholders who unwisely bought in during the last capital expansion are down over 30%. So far this year Popular’s shares have fallen 65%, making it the worst performer on Spain’s benchmark index and one of the worst performing banking stocks in Europe.
Even before the latest bloodbath, some of the bank’s biggest shareholders were already feeling the pinch. According to the Spanish financial news site El Confidencial, they include Unión Europea de Inversiones (UEI), an investment vehicle that represents the interests of scions of Spanish business closely linked to Opus Dei and which controls 3% of Popular’s shares.
Things have gotten so tight of late that UEI has reportedly had to request €160 million worth of participative loans — loans made by multiple lenders to a single borrower.– to “rebalance its liquidity and refinance its elevated levels of debt.” That freshly minted debt was provided by Spain’s biggest bank, Banco Santanter (€45 million), its fifth biggest bank, Banc de Sabadell (€56 million) and its sixth biggest bank… yes, that’s right: Banco Popular (€60 million).
If there’s any doubt as to how Spain’s new coalition government might respond to the threat of a collapsing Banco Popular, you can rest assured. As El Pais reported in 2015, Banco Popular has been funding the political campaigns of just about every major political party in Spain, including the governing People’s Party and Cuidadanos (Citizens), for decades. According to one of the parties interviewed, the great thing about Popular is that it “doesn’t set so many conditions.” Which just about says it all. By Don Quijones, Raging Bull-Shit.
The “Doom Loop” resurges. Read… Italy’s Banking System on Verge of Nervous Breakdown
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The managers in Spanish banks are still in the pre 1960s still giving 120% mortgages in 2915/16 mentality mode haven’t learnt much
Guess their more interested in their pensiones if they ever get one Spain pensiones are really dubious
Pretty funny (for a school bus collision with a freight train): EU banks needing bailouts w/ governments/banks borrowing from the same lenders they are bailing out.
We live in strange times … so bizarre anything is possible. Almost as far fetched as the Chicago Cubs winning the World Series!
Right?
If it is impossible to run a bank profitably without indulging in “bad banking” practices, why are all these banks that DID indulge in bad banking now so close to failure?
Is it possible that their managers should be fired for incompetence, beofre or after they are jailed for fraud?
Maybe the Chinese solution would be best. Shoot them.
Unfortunately it is a cultural thing. If they don’t do what the other banks do then they lose too. So one way is to lose slowly and probably get taken over and the other way is to maximize the top managers income and go out with a bang OR maybe even get bailed out and never have to pay for the greed and selfishness.
The only way to stop this is thru regulation which every corporate and banking interest propagandizes against. Any time the incentives are for theft then that’s what you get. They have taken the common law of fiduciary and turned it on its head and the regulators and courts have allowed it. Just because they tell a lie as if it was the truth over and over doesn’t make it the truth. Unregulated banks and unregulated corporate interests NEVER have anyone’s interest except their own. Allow unfettered greed and this is what you get.
Willem Middelkoop has most of all of this covered in his book “The Big Reset”. Its simple stuff. If you keep deficits going ad infinitum then as Margaret Thatcher once said “The problem with socialism is that you eventually run out of other people’s money.”
Keep bailing out the banks and watch countries fail. Then eventually we’ll go back to the real denarius.
OK — well said.
Question : Have you put away a coupla-three real denarii to help cope with the coming Corporate and Country failures ?
Solid Silver Denarii feel good in the hand and ring true on the old oak table.
SnowieGeorgie
“eventually we’ll go back to the real denarius.”
Whatever that means. Over the course of its history the denarius was debased out of existence.
Presumably the term “real denarius” denotes the coin in its pre-debased condition. Real silver denarius . Well, that is the assumption I made when reading the post.
I have a really old denarius that is 90% silver, and as good as any pre-1964 silver dime the USA had before LBJ ( et al ) debased our coinage out of existence.
The resulting inflation, BTW, has made the 5¢ nickel cost almost a dime to produce these days. And the pre-1982 USA cents are worth more as base copper than their stamped value of 1¢ .
It won’t be long before the next burst of inflation turns the USA 5¢ nickel into a “bullion coin” . The USA one cent piece is already hoarded by those who see them as “copper bullion” . Google it to see the enthusiasm for “harvesting” copper cents from the drek of copper-plated zinc cents.
Go here for the poop on base coin “bullion” values :
http://www.coinflation.com/
You can look up Gold and Silver coin values, as well as the metal value for debased cents, nickels, dimes, quarters and halves.
SnowieGeorgie
I have a Marc Antony denarius; unfortunately even in 40BC, they had been debased – when you pay your troops you get away with what you can. Fortunately, they’re worth maybe 120 bucks now or more even though they were issued by the millions and millions still exist – tells you a lot about our ‘money’.
Canada dumped the penny about 3-4 yrs ago. 10-20 yrs after it should have been.
Everyone focuses on the cost to produce the coin.
At one point the C mint was over two cents then got it down a bit.
But the big factor is the huge waste of time.
A few months before the penny was canned- I ordered a filet of fish and small shake at McD- bill 7.01
For years most cashiers had a jar at the till with ‘take a penny leave a penny’ to solve this stupidity. ,
Not McD- the kid at the window needed his penny!
But I didn’t have one. Floor change= one and two dollar coins.
So he had to go get a penny wrapper, unwrap, enter it in till, to give me my 99 cents.
When I figured at home, using his time only at minimum wage it cost them about 12 cents to collect that cent.
The penny cost billions in wasted time at every till.
BTW: all the paranoia about canning it evaporated overnite. The final bill is just rounded up or down to nearest 5 cents.
Everyone has forgotten the coin and the controversy.
Battelle memorial institute (1913) if you want to know who holds the patent for cutting the penny.
That is so much garbage. This is neo-liberalism directed by neo-Keynesians who call it dumb names like Socialism.. This isn’t socialism unless there is some bizarre version that looks more like feudalism. Socialism is for the benefit of the people not the benefit of the Banksters and the Corporate elite or the entrenched Political elite either.
Socialism is the systematic cultivation of the human failure so that their ‘leaders’ can live live Renaissance princes.
Capitalism is the extraordinary belief that the nastiest of men, for the nastiest of reasons, will somehow work for the benefit of us all. And it will always exist so long as socialists are there to bail it out.
And yet, socialism for capitalists is neither socialism nor capitalism. It is rewarding avarice and criminality for its failures.
Capitalism exploits the worker with a false sense of belonging while it swindles him out of his belongings
Indeed!
If we must have Darwinian/Nietzscheian “Global Free Market Capitalism” (what ever that means) that the reactionary neo-conservatives [neo-liberals outside the US] dream of, then it must be for everyone, particularly the 1% and the TBTF corporations.
How much of the reported enormous bank losses are honest “coin of the realm” and how much are “funny money paper losses?”
Why is there no effort being made to “blacklist” the banksters who run their banks into the ground, to prevent them from moving on, and doing it again?
In the US, most states now have a “point system” to remove scofflaw and inept drivers from the public roads. For those of you not familiar with the concept, each moving violation (speeding, running stop sign, etc.) has so many (expiring) points assessed/accumulated by the individual driver, and if the point total exceeds predetermined limits, their drivers licenses are first suspended for increasing periods of time, and with continual point accumulation are revoked.
I see no reason the same scheme shouldn’t be applied to both individual banksters, and indeed their banks.
“Why is there no effort being made to “blacklist” the banksters who run their banks into the ground, to prevent them from moving on, and doing it again?”
The article makes that clear: they bought out the government.
Controlling governments is what banksters do, and they have a lot of ways to do it.
‘How much of the reported enormous bank losses are honest “coin of the realm” and how much are “funny money paper losses?”’
For banksters, the trick is to somehow, some way, exchange those “funny money paper losses” for the “honest coin of the realm”, trading contrived assets for real assets. That’s the magic of fractional-reserve banking. Where does all that money go? The fact is, a lot of it never really existed. But they can still get stuff with it if they’re clever. And they can be infinitely clever.
They run the scam in boom-bust cycles, and have been doing it since the 19th century. It’s a lot easier with the complicity of governments, but those are rented out just about anywhere.
Henry Ford
The man ,whose accounts payable clerk’s, estimated the value of the due invoices, by weighing them.
They were still doing this, when McNamara went to work there, after WW II.
Henry was an Anti Semite and Anti Banker, who simply couldn’t run the financial side of his business.
His position enabled him to promote some very bad ideas and concepts.
Walter Map: Perhaps we should discuss the benefits of renting a politician, as opposed to buying. It is the rare politician indeed that isn’t looking for self enrichment. The ultra-wealthy buy or lease the ones they need. And if that isn’t enough, they buy public opinion with Astroturf think tanks and sell-out researchers.
Perhaps I am too pessimistic, but I don’t see anything changing. We the people may win a battle or two, but we are destined to lose the war. People like the Koch Brothers and their ilk have people to work against our interests full-time. We the people, can only devote some of our time because we have jobs and family obligations. And way too many of we the people are complacent and happy as a pig in warm mud so long as the Kardashians provide mindless distraction.
Jamie Dimon reached into his lapel pocket and pulled out two crisp dollar bills placed them on the mahogany desk.
This is what your bank is worth.
Its the worth of the underlying assets and it ain’t personal!
The only good news is that pretty much all Europeans will become bank owners in the future, but without the benefits, just the liabilities.
In LinkedIn though, you’ll be able to say as one of your occupation: “Bank Owner of Monte dei Paschi di Siena, Deutsche Bank, Banco Popular and MANY other banks.”
Iam sure your funny came out of the borrowings from the Fed.
It will take time for people to understand the significance of the World Series victory of the Chicago Cubs, the archetype of the Perennial Loser.
Hell has frozen over. The cows have come home to roost. Lisa Simpson is popular in school.
Magic is loose in the world, and anything is possible.
Love does not make the world go ’round. That just keeps it populated. No, banksters rule the world. They’re not going to come out and tell you. They think you’ll be better off figuring it out on your own.
“Love is the answer. But you should own a handgun just in case.”
— Senate candidate John Kennedy running in Louisiana
Without the endless regurgitation of innovative financial products, most banks around the world will be required to do what banks used to do – provide funding for the real economy. Remember when banking used to stand for prudent decision making? We need to return to the good old days when the craziest thing a banker would do would be to live next door to a family of oil rich hillbillys. Mr. Drysdale must be rolling over in his grave.
Yup, in the good ol’ days, a bank or Savings and Loan would asses a property, take a 20% down payment, check the credit worthiness of a person taking out a mortgage and lend out the capital to close the deal. Then, as crazy as it sounds, the lender would actually hold the note until it was paid off and transfer the deed to the owner.
My folks bought their first home in 1962, and that’s how it was done!
Yeah, but then the ability of the bank to lend further is now constrained. It’s so easy to blame the bankers, but they are responding to that demand called the American Dream, probably the MOST EXPENSIVE product in history.
I was under the impression, and correct me if I’m wrong, that in the case I re-tell, the bank or Savings and Loan now can use the down payment and value of the home (minus down payment) as equity on their books. With this equity, they can leverage at 10 to 1 and lend out more mortgages.
Gotta love the theft of wealth game, let’s re-elect them for another few terms.
Oh heck, in the EU the ECB is appointed, not even elected. Now there’s a real system!
We should get rid of this pesky and time-consuming re-election process we have b/c we adore the theft of wealth game, the re-election process is inconvenient and just gets in the way.
Ahh Mr Quijones, without reading everything I can find that you write, my education regarding EU and European banks and corruption, criminality and downright theft perversions injustices and every sickening depraved action taking place there would be sorely deficient.
Great work,, I just wish more like you.
DQ,
I definitely agree you do a better job at reporting financial news than the Wall Street Journal, which I never read anymore, because it is a waste of time. Keep it up, we do appreciate it out here in uneducated and under informed fly over country.
Thanks, Petunia and Gil, for your kind words of praise. They put a smile on my face.
Add to the list my relatives who saw their savings wiped out as stocks of Italy’s Banca Valsabbina went from €18 to €4.6 in a year… and we still have a couple months left in 2016.
Its ugly creating opportunity out of heartbreak.
Buying impaired credit for pennies.
The every decade asset strip takes its toll as bankers push the envelope and country men can’t discharge any debt because its forbidden?
Like American student loans? Spending millions to learn about defunct economys before they jump the creek and the authorities do stuff that make the education meaningless!
I lived in europe for years. Nice people who trust government way too much.
I question the qualifier “newly crushed.”
Given the growing discovery of the actual condition of the banks and the quality (or even existence) of the “assets” against which the depositors’/investors’ money was lent, it appears these banks have undead vampires for some time, possibly years, sucking the life out of the economies in which they are embedded.
What’s the group’s thoughts on this, and how can insolvent corporations be stopped from trading, particularly the TBTF ones in finance?
What sort of benchmarks or criteria should be used to determine when a corporation must be forced into involuntary bankruptcy, either Chapt. 7 or 11 under U. S. law, or conservatorship? How long should a “for profit” business be allowed to lose money?
particularly in the Club-Med region, Euro Bank’s will keep on doing this, as long as the EU and National regulators let them. Honestly how can these big Penny stock bank’s, be considered, Solvent, or Stable, in the Stress tests.
Club-Med bank Regulators have been avoiding this since the 70’s.
The Greek Fraudulent entry to the Euro, which Turned Lehman’s in to the GFC, when it was exposed, has also exposed their little games, and sped up the arrival of the pipers call date.
As the Zombies they are keeping alive, are a major part of what is preventing real recovery, in Banking, and Production. Everywhere.
Japan has a plan to kill most of the small Zombies (it may not work but at least they have a plan). Europe and china haven’t even though about planing meeting’s, to develop a plan. In Fact they are still creating More Zombies along with more NPL’S.
Some dominoes must fall in Club-Med banking, it is simply a case of which regulators, end up with the Parcel/With out a chair, when the music stops.
Impaired assets make wonderful stocking stuffers!