Fire Sale of Bank Assets beginning?

Earlier today in “Bank Blood Letting” I wrote,

Bank of America has lost lost $33 billion of its market value in a single week. Unless these losses are magically erased by spectacular gains, and soon, we will see forced selling of assets as banks try to raise capital.

A few hours later this from Reuters,

HONG KONG/DUBAI, Aug 10 (Reuters) – Bank of America Corp (BAC.N) has held exploratory talks with the principal investment funds of Kuwait and Qatar about selling part of its stake in China Construction Bank (0939.HK), sources with direct knowledge of the talks told Reuters.

Bank of America, which owns about 10 percent of CCB’s (601939.SS) Hong Kong-listed shares and is scurrying to raise capital for its mortgage-scarred balance sheet, will be contractually free to sell the bank shares after Aug. 29. They are valued at about $17 billion

The same article goes on to say that estimates are that BoA will need $50 billion to shore up its Tier One capital.

As ZeroHedge notes,

There are several problems with this approach: first, the petrodollar sovereign wealth funds just lost over 20% of their AUM courtesy of the global equity rout and of the plunge in oil by more than 20% in less than 2 weeks;

Quite. I would say we are seeing the beginnings of a fire sale.  And the thing about fires, is they spread.

China Construction Bank is itself not looking too healthy and will not appreciate what such a sale might do it own share price. Already this year one of Singapore’s state owned funds Temasek sold  $3.1 billion of China Construction Bank and this much smaller sale than the one proposed by BoA, sent China Construction Bank shares down by 3%. Bank of America’s sale of half or more of its $17 billion stake, if they can find a buyer, will have a greater impact.

Part of the reason Tamasek sold its holding was because,

… Moody’s warned of a possible ratings downgrade for Chinese banks due to their higher-than-expected exposure to local government debt. 

Just in case the point wasn’t clear enough the same article also includes this quote.

“I do not like the Chinese banks. My concern is that they may freeze their dividends,”Mark Matthews, head of research Asia for Swiss wealth manager Julius Baer, citing their exposure to local government debt.

I include this little quote from the article because Julius Baer is a very private and very clever Swiss bank. They were the ones, I was told by an acquaintance in Switzerland, who sold their portfolio of American clients to UBS just before the US authorities clamped down on Swiss banks harbouring US tax evaders. UBS found it had quite a few such clients. Julius Baer had none.

So if Julius Baer thinks Chinese banks in general are holding lots and lots of Local government debts which will default, who am I to argue. I think BoA will not have an easy time selling its shares and will not get the price for them it is hoping for.

All of which leads me to start wondering what other banks will try to sell?

I wonder if SocGen and Credit Agricole will try to sell off their joint East European Bond venture, Amundi,  which is is heavily exposed to Hungarian and Romanian debt? Or start selling its holdings? Or will Societie Generale try to sell its Romanian bank, BRD? And what about Raiffeisen or Erste both Austrian banks with large Hungarian and Romanian exposure? Or what about Bank Austria which is part of UniCredit and has exposure throughout Eastern Europe? UniCredit already tried to sell its huge American subsidiary, Pioneer, but decided not to after all, when there didn’t seem to be a rush of likely buyers.

European banks are running out of cash. They are not lending to each other – the Euribor is not looking good at all. They have all lost a shed load of their stock market value AND according to this rather good piece posted on ZeroHedge, American Money Market funds are pulling their cash from Europe. That leaves European banks without short term or medium term funding.

But if they do have to sell, and the above says they will,  they’ll be doing so in to a falling market which will depress the market further.

So far the Dow Jones has lost 1000 points in about three weeks and the slope of the downward curve is steepening.