I guess there was a 50/50 chance: The EU would have to pull out the big bazookas in order to stem the panic in the financial markets, or they could continue the strategy they’ve seemed to be following for quite some time now; keep on treading the water and hope for the problems to go away. Unfortunately they have chosen the last alternative.
“If anyone thinks things are getting better then they simply don’t understand how severe the problems are. I think a major bank could fail within weeks.”
Bank Executive, London
And the first one may very well be the German bank giant, Commerzbank, according to SPIEGEL ONLINE. Senior analysts and traders warned of impending bank failures as a summit intended to solve the European crisis failed to deliver a solution that eased concerns over bank funding, The Telegraph writes.
The European Central Bank confirms it has held meetings about providing emergency funding to the region’s struggling banks, but British financial experts, however, says a “collateral crunch” is looming, British news paper The Telegraph writes on its web site.
“If anyone thinks things are getting better then they simply don’t understand how severe the problems are. I think a major bank could fail within weeks,” says one London-based executive at a major global bank.
Many banks, including some French, Italian and Spanish lenders, have already run out of many of the acceptable forms of collateral such as US Treasuries and other liquid securities used to finance short-term loans and have been forced to resort to lending out their gold reserves to maintain access to dollar funding.
“The system is creaking. There is a large amount of stress,” says Anthony Peters, a strategist at Swissinvest, pointing to soaring interbank lending rates.
The German paper, Der Spiegel, reports that Berlin is considering a full nationalization of the nation’s second largest bank if necessary.
“According to government sources, if Commerzbank doesn’t manage to raise sufficient capital on its own by next summer, Berlin will reactivate the Special Fund for Financial Market Stabilization (Soffin) and purchase additional shares in the bank. The sources say that they assume the government would acquire a majority of the bank’s shares in a capital increase,” SPIEGEL ONLINE writes.
“But things haven’t reached that stage yet — and they won’t necessarily have to, either. Commerzbank management is working round the clock to solve the problem without government aid. It’s a difficult job that will mainly have to be tackled by the new Chief financial Officer, Stephan Engels, who was appointed by the supervisory board last Friday.”
If Commerzbank fails to meet the challenge, though, Commerzbank CEO Martin Blessing’s days at the head of the commercial lending giant may very well be numbered.
“I’m not going there again,” he recently said, in reference to a government bailout of €16.2 billion ($21.7 billion) that the bank received in 2009. His statement was not well received in Berlin.
Well, let’s do a poll,,,,
CreditSights’ weekly funding report says the ECB had effectively become the central clearer for the region’s banks as lenders are increasingly distrustful about funding one another.
Bank deposits with the ECB now stand at their highest level since June 2010 at €905bn (£772bn) as lenders withdraw deposits held with their peers and put them into the central bank.
At the same time, banks in major euro zone countries such as France and Italy have become increasingly reliant on central bank funding.
This follows the trend seen in smaller countries like Ireland where lenders have effectively becomes taxpayer-funded “zombie” banks.
Alastair Ryan, a banks analyst at UBS, said there would be “no Lehman moment” – or single catastrophic event – for the European banking system, but added that without a full backstop of bank liabilities by governments the system would “struggle to finance itself in the next year in a durable way”.
“The system at the moment hasn’t got funding of a duration that allows it to function, so it’s failing,” Alastair Ryan concludes.
Ladies and Gentlemen; take your (short) positions!
And just for the fun of it – here’s a shrt summary of this “make-or-break” summit in Brussels:
What the EU leaders agreed on
A new EU20, EU26 or EU-something-in-between treaty on financial discipline.
A more market-friendly bail-out fund.
Funneling more EU money back to the EU via the IMF.
Eurobonds, maybe, in the long-term.
What the EU leaders did not agree on
No new EU treaty.
No big bazooka.
No ECB money-printing.
Will the ECB buy more bad debt?
What bits of the new treaty will apply to whom?
What will the EU institutions do?
How will the EU bail-out fund make its decisions?
Will there be EU-wide taxes?
Related by the EconoTwist’s:
- The European Meltdown Begin
- The Global Economy is about to Crash
- Goodbye Eurobonds! (Or Hello?)
- The Sociopathic Banking System of Europe
- Europe: “Time to Get Angry”
- The Big Cannoli (Europe’s Catch 22)
- EU: Drifting Towards Default, Destabilization And Disaster
- Eurozone banking system on the edge of collapse (telegraph.co.uk)
- 10 Friday AM Reads (ritholtz.com)
- State ‘may take over Commerzbank’ (bbc.co.uk)