Then later in the day Reuters followed up with this interview with Pimco global banking specialist Philippe Bodereau, who says 18 banks will fail. Juncker must have thrown a hissy fit, and then lied about it.
Pimco’s Banking Expert Expects 18 Lenders To Fail ECB Stress Test
Fixed income investment firm Pimco’s global banking specialist, Philippe Bodereau, expects 18 banks will be seen to have failed the European Central Bank’s stress test of 130 regional lenders when results are published by the ECB on Sunday. Bodereau said in an interview on Wednesday the failures would likely include some German and Austrian cooperative and public sector banks, as well as weak regional lenders in the southern periphery.[..]
Describing the exercise as a milestone for cleaning up the banks, he said the test was “reasonably credible” when compared with previous tests and provided investors with a starting point to evaluate banks. “It’s pretty clear that not that many banks are going to fail it. A fair amount of balance sheet strengthening has taken place over the last six to nine months in anticipation of this exercise,” Bodereau told Reuters.
Big national champions across northern Europe and also in Southern Europe should pass quite easily, he said, although he expected almost a third of those tested to pass by a narrow margin. This group would likely include many medium-sized banks. “Probably the market will ask questions about their dividend policies, about their ability to grow balance sheet, etcetera. They will be under pressure to remain quite conservative on capital management and on deleveraging,” said Bodereau. [..]
Given recent market volatility, he said it was more likely there would be a positive than negative market shock after the results are released, and that share prices for the region’s biggest banks could be a market winner on Monday.
130 banks are being tested. 12-18 will fail. And on top of that, almost a third of 130, that’s over 40, will pass while still getting their feet wet. That means anywhere between 40% and 44% of Eurozone banks either fail or are in bad shape. And Bodereau suggests this will lead to a positive market shock on Monday morning. You might want to ask yourself what market position he has taken, how short he is exactly, and what book he’s talking.
If 40% of your banks are either dead in the water or barely floating, I’d say you have a major problem. ECB head Mario Draghi is undoubtedly still stuck in misplaced confidence on account of how well his ‘whatever it takes’ speech worked out, and ‘fresh’ EC head Juncker is as we speak emptying several bottles of champagne at once to celebrate his new job. He’s known to like his drinky.
And the ECB, under current conditions, seems almost entirely powerless to do anything about this, since, as Tyler Durden, using Barclay’s numbers, summarizes, it can only purchase $10 billion or so in ABC/Covered bond purchases per month, and another $5 billion per month in corporate bonds. There is simply not more eligible debt available for it to buy. Its mandate would have to be changed in drastic ways, and that doesn’t seem to be in the cards at all.
To keep markets afloat, however, as Bloomberg notes, $200 billion a quarter in QE from the central bankers is needed. The Fed is almost out, China has mostly withdrawn, Japan has too many domestic problems to look out the window, and the ECB can do just $15 billion a month. Confused? You won’t be .. after next week’s episode of .. the Eurosoap.
We all know our world, be it politics or economics, consists almost exclusively of spin these days, but in the face of these numbers I very much wonder how many people will be willing to bet their own money that Europe can get away with another round of moonsmoke and roses come Monday.
