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Belgian Bank unwind

I was going to say shit storm but thought better of it.

But there is one and Dexia, which I wrote about just a few days ago, is at the centre of it.  In short there is the chance the Dexia could pull down both Fortis and ING – or at least knock them off their feet.

Here’s what is happening.  Dexia’s share price has been dropping.It has lost a fifth of its share price in the last month and lost 6% today. And that is causing something called Communal Holdings to teeter on the edge of bankruptcy. Communal Holdings is the investment vehicle for many if not all of Belgium’s communes and cities.  In fact Dexia grew out of the semi privatization of part of Communal Holdings/Credit.

Communal Holdings has, therefore. always held a great deal of its wealth in Dexia stock. Dexia, like Northern Rock and RBS believed it could become a tiger. Not a Celtic one, a Belgian one. Grrr!

Sadly Belgian tigers are laughed at more than feared. Dexia was bailed out not only by Belgium but quietly by the FED and the ECB as well. It also seems that during the first part of the crisis Communal Holdings may have bought more Dexia shares as a way of supporting/bailing it.

But that isn’t the real problem. The present danger is because it turns out that the Belgian communes used their Dexia shares as collateral for taking on loans. And now as the share price collapses the amount of collateral is similarly disappearing. The banks from whom the communes took the loans are Fortis and ING. Very probably Fortis and ING swapped out the Dexia share-backed loans for shorter term debt and /or used the income as collateral in yet more loans.

With the collapse in Dexia share price ING and now Fortis are making Margin calls on Communal Holdings. Margin call simply means that Fortis and ING ask Communal Holding to provide more collateral against the loans to make up the value that has been lost from the originally pledged collateral. What always makes ‘Margin calls’ hit the headlines is that in a world of high leverage borrowers very often don’t have any more collateral lying around and so the dreaded ‘Margin Call’ often presages a fire sale. And because investors know this, a Margin Call often also sparks investor sell off, which of course makes the original short fall due to share price decrease worse.  And sometimes the share price and margin calls get locked into a self destroying spiral.

Apparently the Belgian government has already had to step in to bail out Dexia today. I doubt it will be the last time. And in this story is a pattern of bank to bank contagion that we might be seeing more of as share prices in the French, Italian and Greek banks continues to plummet.

20 Responses to Belgian Bank unwind

  1. 24K September 12, 2011 at 6:31 pm #

    duude.

    I think the morphine has worn off. Did the blog always look like this and I was in some opium stupor or have we changed to the harder edge version? Was the GOLEM XIV font always so hard edged? Gives me the chills.

    It’s almost like a new phase in this debacle.

    Sets the scene for our winter of discontent.

    Missed a trick with the favicon, the bird, would look tops flying in the tabs, give a sense of freedom, that it’s possible, there is a better way.

    It’s like the “too big to fail” quote. Proper winds me up, how to insert defeatism into a quote, just props up the thought of something immovable but they aint heavy they lightweight, that’s why they need the circus acts.

    “Too big to bail” is the correct terminology.

    We are “too big to fail”.

    Good luck with G2.0 G

    Favicon, birds, you know it makes sense 🙂 Also I see no code input thing, that’s dangerous drunk late at night. I apologise profusely for any future transgressions that may appear due to the lack of the code input thing but hey, don’t hate the player hate the lack of the code input thing.

  2. shtove September 12, 2011 at 7:24 pm #

    Spelling alert!!!

    I like the new format – “crisp”, as the wordpress design gurus say.

    I noticed nakedcapitalism went with the short format of articles last year, to fit more posts on the page, but I was less inclined to read them. Maybe include a slightly longer extract, until the reader reaches the hook and has to click through.

  3. Golem XIV September 12, 2011 at 7:43 pm #

    shtove,

    OK I’ll see what I can do about the length of the extracts. I certainly don’t want to put anyone off.

  4. Erictheking September 13, 2011 at 12:36 am #

    It’s incredible what agenda the bailout is pushing:

    http://www.guardian.co.uk/politics/2011/sep/12/march-of-the-neoliberals?CMP=twt_gu

    • Dave September 13, 2011 at 12:49 pm #

      Sociopaths .

      • Mike Hall September 13, 2011 at 2:42 pm #

        +1

  5. Neil September 13, 2011 at 9:12 am #

    Just happened to look at the 12-month share price chart for Germany’s Commerzbank, the biggest loser on the Dax so far this morning at -5.27% (http://www.bbc.co.uk/news/business/market_data/shares/5/113182/twelve_month.stm ).

    The current share price is listed as 1.58, down from around 6.5 a year ago – a HUGE drop.

    This far exceeds the drop in RBS shares, for example (http://www.bbc.co.uk/news/business/market_data/shares/3/87122/twelve_month.stm ), down from 50p to around 21p over the same period.

    What’s the story here, I wonder?

  6. Hysteria September 13, 2011 at 10:19 am #

    Now I am normally the first to complain when an Interwebz site changes the format – normally to “improve customer service”…

    But in this case I have to say I like the new look.

    • Moraymint September 13, 2011 at 8:10 pm #

      Me too Hysteria!

  7. Neil September 13, 2011 at 10:48 am #

    Commerzbank now down 10% to 1.50 – 25% of their price a year ago.

    Meanwhile, French banks, from the Wall Street Journal:

    ‘We can no longer borrow dollars. U.S. money-market funds are not lending to us anymore,” a bank executive for BNP Paribas, who declines to be named, told me last week. “Since we don’t have access to dollars anymore, we’re creating a market in euros. This is a first. . . . We hope it will work, otherwise the downward spiral will be hell. We will no longer be trusted at all and no one will lend to us anymore.”

    He’s not the only one worried. France’s three biggest banks have been the subject of whisper campaigns about their solvency since … [subscription needed to continue]

    http://online.wsj.com/article/SB10001424053111904353504576566821711712348.html?mod=wsj_share_tweet

  8. Dave September 13, 2011 at 12:24 pm #

    Damn, have to subscribe for that wsj article, but at least have registered there !

    Golem has often mentioned Hungary —

    ” Hungary’s government and banks operating in the country are almost certain to have another conflict after Prime Minister Viktor Orban announced a controversial message to assist troubled household debtors.

    Mr. Orban revealed to parliament Monday a motion that would allow foreign currency debtors to pay off their debts in a single payment at a fixed exchange rate — causing the banks a loss of around 25%. If all foreign currency debtors took advantage, the banking sector could see aggregate losses of €3.4 billion, RBC Capital Markets said in a comment”

    http://blogs.wsj.com/emergingeurope/2011/09/12/hungary-banks-prepare-for-another-face-off/?mod=WSJBlog&mod=emergingeurope

    frog2

  9. sid_finster September 13, 2011 at 12:33 pm #

    Any insight into how exactly the Belgian government bailed out Dexia (again)?

    Can anyone tell the group whether those Dexia shares which Communal Holdings used as collateral can be re-hypothecated by ING and Fortis?

  10. Neil September 13, 2011 at 12:42 pm #

    (Sir) Howard Davies: ‘In the next couple of days, the French government will have to recapitalize their banks’

    Peston post: France held hostage by its banks

    “The danger is that at the moment that the French government makes explicit an open-ended willingness to underwrite the enormous balance sheets of French banks, the more the perceived strength of the balance sheet of the French state would be undermined. In a worst case, the risk for France is that it becomes Ireland on steroids.”

    http://www.bbc.co.uk/news/business-14896685

    There will be an EU summit on the future of the eurozone on October 17th and 18th (17th October, eh? Isn’t that when Greece runs out of money, absent a European bail-out?)

    Reuters report that Sarkozy and Merkel will make “an announcement” on Greece later today.

    PS on Commerzbank – see Golem Aug 10th: “Commerzbank in Germany just announced a 93% drop in profts due to ‘impairments’ on exposure to Greece. Can’t wait to see what ‘impairments’ they declare in a couple of months time due to exposure to Italy and Spain.”

  11. StevieFinn September 13, 2011 at 1:09 pm #

    @ Eric,
    Very scary to see it there in black & white & to imagine how apathetic & unaware the nation is. Sociopaths is right.

  12. Neil September 13, 2011 at 2:28 pm #

    Another snippet from the Wall St Journal article on French banks I quoted above:

    “Now that the situation is bordering on catastrophe, analysts are suggesting that the government is set to start nationalizing France’s banks. The banks have remained silent on the matter, and the government denies this talk.”
    (from http://www.zerohedge.com/news/europe-imploding-again-following-another-ugly-italian-bond-auction-wsj-article-discussing-frenc ).

    The Merkel-Sarkozy Greek statement news has now been withdrawn, but Reuters is now saying they’ll hold a conference call with the Greek PM George Papandreou tomorrow.

    The rumour mill is certainly doing overtime.

  13. Mike Hall September 13, 2011 at 2:30 pm #

    Excellent panel discussion on the Euro crisis featuring Michael Hudson on RT News (non-mainstream) linked on Naked Capitalism here:

    http://www.nakedcapitalism.com/2011/09/euro-sos.html

  14. Jim M. September 13, 2011 at 5:08 pm #

    @ StevieFinn:

    If black & white is to your taste, you may enjoy Bill Black’s summation of why the Banks really are to blame for all our financial woes!

    http://neweconomicperspectives.blogspot.com/2011/09/who-put-rot-in-herr-hummlers-wurst.html#more

    • StevieFinn September 13, 2011 at 8:02 pm #

      Thanks for that, a great read, makes a lot of sense. The liar’s loans that caused the crisis afterwards corrupted good loans too. A kind of cancer.

  15. Patrick Donnelly September 14, 2011 at 1:16 pm #

    Looks like most dislike commenting on Israel! Should be named Judea anyway, typical!

    Belgium was tipped to be in trouble a few years ago after PIGS.

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