Tuesday’s confirmation of yesterday’s Zero Hedge rumour (that Spain is embarking on a bailout of its banking system) must be making the residents of Berlin-sur-Brussels wonder what on Earth might happen next. But it’s looking increasingly like the Next Big Thing could be a French bank failure.
The Slog has been investigating the case of Credit Agricole over the last three weeks. (It just happens to be my bank in France, and it also happens to be holding quite a lot of my folding at the minute…. so this was a personal as well as professional concern).
Yesterday’s 6% fall in CreditAg shares didn’t come entirely as a surprise here in Slogger’s Roost. While all the French majors slid on fears of a bank-taxing socialist in the Elysees Palace, my bank positively slumped. Why?
“I would’ve thought it was obvious,” says The Slog’s Bankfurt Maulwurf, emerging at last after some three weeks in hiding, “It’s exposure to the Greek banking disaster is enormous”.
He’s not wrong. Even EU Commissioner in permanent Athenian Residence Horst Reichenbach admitted at the weekend that “the banking credit sector here gives cause for concern”. And this is where we must be precise about the problem CreditAg faces: its exposure to Greek sovereign debt has been substantially reduced (with help from Mario ‘Paper’ Draghi) but not its involvement in Greek banking by ownership.
The Greek insitution concerned is Emporiki Bank. In 2011 alone it cost Credit Agricole around €1bn in write-offs. And while the French bank’s exposure to Greek sovereign debt is now neutral, it’s commitment to Emporiki is anything but.
“In the last month,” says a trusted source in Madrid, “I have seen figures showing that 84% of Credit Agricole’s Greek exposure is to Emporiki alone. We are talking in the region of €20 billion here – over six times more than any other French bank. Without a doubt, this is going to be Francois Holland’s first big test”.
While Mario Draghi’s alleged recapitalisation of Greek banking is under way, there is no sign or indeed proof that any of this has gone to address a problem of loans outstripping deposits at Emporiki by two to one.
“If the French banking collapse is going to start anywhere,” suggests a Greece-savvy source in Deutsche Bank, “then it will be at Credit Agricole. While the Emporiki deposit base was upped after the March bailout, the loans position is getting worse and worse.”
Oops. Anyway, a quick look at the CA share price shows it doen further to €3.54 at 13.40 GMT…and selling volumes have accelerated considerably in the last two hours.
We may be on the verge of an event. Meanwhile, the entire Spanish caja sector is in a serious mess.
Rodrigo Rato, Bankia’s executive chairman and a former International Monetary Fund managing director, resigned from the bank formed two years ago from a merger of seven Spanish savings banks – the cajas – wherein most of the property balloon junk resides.
It just goes to show: that reliable ol’ IMF quality always comes out in the end. I wonder what Frufru Lagarde will do when her time is up? Yesterday, she confused potential future employers still further by telling an audience in Zurich that the growth-vs-austerity fight is a “false debate”. The IMF’s current Managing Director urged some flexibility for eurozone countries having trouble meeting fiscal targets. Did this include Greece, people wondered? No, she agreed – it didn’t.
Lest we forget, Lagarde’s largesse and false confidence about French spending and banking during 2010 were suddenly outed when French banks were discovered to have invested in over 47,000 tartan-paint factories in and around Athens. Then on joining the IMF, she reversed her description of French and German banks as “rock solid” by running around the EU telling banks to recapitalise with all haste. More recently she has diversified into the bazooka-leveraging space, a sector in which it is enough to say you have paper commitments for $300bn in order to walk around threatening to dispense $600bn of the real thing.
There’s a whelk stall at Borough Market looking a bit down on its luck. Christine might be just the crustacean they need.