The Leverage And The Size Of European Banks Increases The Likelihood Of Regional Integration Of All Banks

Financial Market Report for April 25, 2012

The 9% rise in Apple share makes for an excellent short selling entry point; as will as a short selling entry point in ISRG, and the ETFs XBI, PKB, QQQ, JKE, and also chemical manufacturers DOW, GRA, FMC, VAL today. 

The leverage and the size of European Financial Institution, EUFN, increases the likelihood of regional integration of all banks. Out of Sovereign Armageddon, a One Euro Bank and A One Euro Government, with Germany rising  to be preeminent, will be announced by leaders, as they meet in summits and affirm regional framework agreements, which waive  national sovereignty to pool sovereignty regionally. A monetary pope will provide diktat for credit, and a budget commissioner will establish diktat as money as the fiat money system is replaced by the diktat money system. 

This despite the fact that Tyler Durden writes is no longer any form of supporter of ally of Germany. The idea that somehow, pragmatic voices will stop this political groundswell is entirely misplaced: this destructive belief set has started to run its course. It is now in the Continental blood and the healthiness of economies over the pond is deteriorating fast

Such is the Clarion Call of the 300 Elite of Club of Rome as they met in 1972 to 1976 and proposed regional blocs, and regional global governance to deal with the issues of financial disintegration of capitalism when the dynamos of growth and profit would fail as investors divinest and deliver out of debt.  

Graham Summers writes in Zero Hedge The Bundesbank Is In Hot Water … Will It Take The Heat Or Throw The ECB Under The Bus?

The ECB has found its hands tied: if it continues to monetize aggressively, inflation will surge and Germany will either leave the Euro or at the very least make life very, very difficult for the ECB and those EU members asking for bailouts.

After all, doing this would score MAJOR political points for both Merkel and Weidmann who have both come under fire for revelations that the Bundesbank has in fact put Germany on the hook for over €2 trillion via various back-door deals.

Against this backdrop, it’s quite clear that the EU’s banking system remains under extreme duress. Case in point, European financials have in fact wiped out all of the gains produced by LTRO 2 in just one month’s time. Small wonder. When we take a big picture perspective of Europe, the entire banking system is a disaster waiting to happen.

Consider the following:

  1. According to the IMF, European banks as a whole are leveraged at 26 to 1 (this data point is based on reported loans… the real leverage levels are likely much, much higher.) These are a Lehman Brothers leverage levels.
  2. The European Banking system is over $46 trillion in size (nearly 3X total EU GDP).
  3. The European Central Bank’s (ECB) balance sheet is now nearly $4 trillion in size (larger than Germany’s economy and roughly 1/3 the size of the ENTIRE EU’s GDP). Aside from the inflationary and systemic risks this poses (the ECB is now leveraged at over 36 to 1).
  4. Over a quarter of the ECB’s balance sheet is PIIGS debt which the ECB will dump any and all losses from onto national Central Banks (read: Germany)

So we’re talking about a banking system that is nearly four times that of the US ($46 trillion vs. $12 trillion) with at least twice the amount of leverage (26 to 1 for the EU vs. 13 to 1 for the US), and a Central Bank that has stuffed its balance sheet with loads of garbage debts, giving it a leverage level of 36 to 1.

And all of this is occurring in a region of 17 different countries none of which have a great history of getting along… at a time when old political tensions are rapidly heating up.

As bad as the above points may be, they don’t even come close to describing the REAL situation in Europe. Case in point, regarding leverage levels, PIMCO’s Co-CIO Mohammad El-Erian (one of the most connected insiders in the financial elite) recently noted that French banks (not Greece or Spain) currently have 1-1.5% capital relative to their assets, putting them at leverage levels of nearly 100-to-1.

And that’s France we’re talking about: one of the alleged key backstops for the EU as a whole.

The Telegraph reports Angels Merkel affirms austerity measures relating current fiscal spending is unsustainable.  Angela Merkel launched a staunch defence of Europe’s fiscal pact as politicians from the Netherlands, Spain and Greece scrambled to keep their own austerity measures on track. In a rare concession, the German Chancellor admitted that austerity alone would not solve the crisis but she insisted that the wave of political opposition to fiscal discipline was wrong. “We’re not saying that saving solves all problems,” Ms Merkel said at a conference in Berlin. “[But] you can’t spend more than you take in. You can’t live your whole life this way. Everybody knows this.”

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2 Responses to “The Leverage And The Size Of European Banks Increases The Likelihood Of Regional Integration Of All Banks”

  1. mark Says:

    My research shows Deutschebank, the biggest bank in the strongest country, at 44:1 leverage. If they mark to market their PIIGS debt, are they insolvent? Are we now in the intermission between the US liquidity crisis and the EU credit disaster?

    • theyenguy Says:

      Thanks for the comment.

      Deutschebank,having leverage of 44:1 is currently insolvent. Yes, we are in the intermission between the US Liquidity Crisis and a EU Credit Disaster.

      Are you able to present the leverage ratios for the other European Financial Organizations, EUFN, and are you able to share what comprises their various assets by category which make up the 44:1 leverage.

      Harvey Organ writes According to the IMF, European Banks are leveraged 26 to 1, and this data point is based on reported loans, the real leverage levels are likely much, much higher. These are a Lehman Brothers leverage levels. Furthermore, The European Banking system is over $46 trillion in size (nearly 3X total EU GDP). The European Central Bank’s (ECB) balance sheet is now nearly $4 trillion in size (larger than Germany’s economy and roughly 1/3 the size of the ENTIRE EU’s GDP). Aside from the inflationary and systemic risks this poses (the ECB is now leveraged at over 36 to 1). So we’re talking about a banking system that is nearly four times that of the US ($46 trillion vs. $12 trillion) with at least twice the amount of leverage (26 to 1 for the EU vs. 13 to 1 for the US), and a Central Bank that has stuffed its balance sheet with loads of garbage debts, giving it a leverage level of 36 to 1.

      Mike Mish Shedlock had a most article recently which related that the EU is experiencing a falling demand for credit in front of falling PMI reports. In other words, falling demand for credit is coming in front of falling economic production.

      Austrian economics holds that credit intervention and excessive use of credit, for example, excessive municipal debt, in addition to speculative investing, was a major cause of the first great depression. The economic super cycle, that is the business and investment supercycle ended four weeks ago as world stocks, VT, turned down, and the world has entered the second great depressin due to insolvent sovereigns and insolvent banks in the Eurozone, which would have collapsed if it were not for intervention on the part of the ECB.

      The EU ECB and IMF Troika is emerging as the new sovereign authority in the Eurozone, and in so doing it is effecting a political and economic coup d etat replacing Capitalism and European Socialism, with regional global governance.

      Deutschebank, DB, will be integrated into the German Government, and both will be regionalized with other former sovereign nation states into a One Euro Government, featuring a Monetary Union, a Fiscal Union, a Political Union, and a Banking Union.

      And Germany will emerge as preeminent over client peripheral states, ruling over a type of revived Roman Empire where a New Charlemagne, the Sovereign, Revelation 13:5-10, one of seeming little authority, Daniel 7:25, will rise to power and be accompanied by a European Banker, the Seignior, Revelation 13:11-18; and their word, will and way will serve as both money and credit in the New Europe.

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