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Property bubbles and Banks – again.

Update: Aberdeen suspends trading on £580m UK Property fund and cuts price by 17%

So begins an article in Investment Week.

Aberdeen Asset Management has temporarily suspended trading in its £580m UK Property fund as well as reducing the price of the fund by 17%, joining a number of other groups in making property fund adjustments amid a post-Brexit rush to exit the asset class.

In fact Aberdeen are the 7th major fund in just a few weeks to either lock in their investors, not allowing them to get their money out, or to allow it but at a heavy discount.  Before Aberdeen we have already had:

Standard Life –  Aviva – M & G – Henderson – Columbia Threadneedle and Canada Life

All have suspended trading in a large property fund. Standard Life also cut the valuation of the fund by 15%. And that sudden re-valuation, a mark to market is the headline.

When one fund says its property assets are actually worth 17% less today than yesterday, that means every single investor in every single fund now faces that same loss. Every one of those assets that is being used as collateral for a loan or for margin trading is now worth 17% less. Trading on margin simply means that instead of using your own money to trade, you borrow money and pledging or ‘post’ collateral to underpin it with your lender. But when your collateral is considered to have fallen in value your lender makes a ‘margin call’ which means they require you to pledge more collateral to make up the shortfall. In this case an additional 17%.

Where do you get that money from? Well some will have to sell assets to make up the difference. But those assets, if they are property, might well also be suddenly worth 17% less. And if lots of people try to sell, to meet margin calls, the price might go down further.

So Funds like Aberdeen are warning their investors not to trip this booby trap.

If they insist on getting out anyway, you have a run.

Which would spread because its not just funds that hold lots of property assets or loans underpinned by them.  This from a Soc Gen study via Zerohedge  (CRE is Commercial Real Estate)

RBS exposure to CRE is GBP 26b, equivalent to 63% of tangible equity
Lloyds 2nd most exposed at 46% of tangible equity, Santander 3rd at 24%, Barclays 4th at 23% and HSBC 5th at 17%

These are all big numbers. For RBS a 17% mark down on 26B is 4.42B

Now we have a clue what RBS share price has been falling relentlessly and is headed right back to where it was trading at the bottom of the crisis in 2009.

 

 

 

 

 

 

 

 

Now if you listen to the press this is all the fault of Brexit.  Which strikes me as misdirection.  It’s trying to suggest this is a political problem created by the great unwashed and nothing to to do with greedy investors speculating and lenders lending into a bubble market.

The fact is that RBS’s share price has been sliding from early 2015 onwards. Which is interesting since until the end of 2015 commercial property prices were still going up and the experts just a few months ago in December 2015  quoted in the FT were assuring us that,

Real estate prices expected to remain high for years.

and that,

“Pricing has gotten very high but there’s a reason it has gotten high … and we think it can stay high,” said Bob Sulentic, the company’s [CBRE – the world’s ;largest property service company] chief executive. “There’s a wall of capital out there that wants to be invested in real estate.”

So let me recap – property prices were fine and going to stay fine said the experts in …property. But all the while certain people were selling their bank shares and trying to get out. And then what do you know. Suddenly those property prices were revalued down by 17% – overnight.

And if it was just RBS’s share price we might just think it was one bad apple. But Credit Suisse shares are trading at their lowest ever. While Deutsche bank, with more derivative exposure than any other bank, except perhaps JP Morgan is, .. well you decide.

20160706_EUpanic2_0-1

I seriously doubt those banks are tumbling to such crisis levels just because of UK property and in some sort of clairvoyant anticipation of Bresixt. No this has been building and its real cause is systemic across the entire European banking sector.

So this is not something caused by Brexit. At most Brexit has made those holding over valued property assets suddenly crystallise a worry they have had for a while now, that someone might stop blowing their bubble for them.

Brexit has simply made it clear, again, that despite all the trillions in QE and the ECB buying corporate debt/bonds right down to the junk bond level, that the banks and the markets they lend to ARE NOT FIXED and never were.

 

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24 Responses to Property bubbles and Banks – again.

  1. El Sid July 7, 2016 at 3:47 pm #

    Glad you’re back.

    Just in the nick, I would say.

    • Schatzie July 7, 2016 at 4:08 pm #

      I’m with El Sid. The world needs more David Malone, err, “Golem XIV.”

    • Golem XIV July 7, 2016 at 4:10 pm #

      Thanks El Sid and Schatzie. It certainly does look like the bodies just weren’t buried deep enough, doesn’t it.

  2. michael July 7, 2016 at 5:10 pm #

    hello david glad your back,im the michael that seconded the proposal on the guardian for you to start a blog and i came to bradford film museum to meet you and watch one of your films on propaganda one very cold winters night,i spoke to you for a short while after the film (im the medium).i have always followed you via the paper then onto your blog which i always visit please keep up the good work i can assure you its very much appreciated by all that visit.i truly believe financial armergedon is closer than many realise.

  3. Tech_trac July 7, 2016 at 5:25 pm #

    join the ranks of all the zombies stalking the Gloom & Doom Cemetary
    the PPT has engineered the greatest Perpetual Motion Machine ever concieved

    TOO EARLY IS TOO WRONG

    • Golem XIV July 7, 2016 at 5:32 pm #

      I agree they can keep the financial machine going for a while yet. But politically they are running out of road. I think they will have to move more openly against democracy and soon.

  4. tom kauser July 7, 2016 at 6:31 pm #

    tempest in a teacup! the Fed will print by AUG. 31 Janet will get everyone laid on the last day of summer! and another European holiday stick save. la dolce vita lives another day. btfd

    • Golem XIV July 7, 2016 at 6:45 pm #

      That is certainly their plan. I agree. But Its not all about dollar funding. Not entirely. See that Bremen LB is about to go down. Will the German’s bail it out? If they do then they will have to be a little less righteous about other countries bailing theirs – like Italy. And QE printing is not so politically ‘easy’ as it is for the Fed. Politics is catching up with the financial fix.

      • tom kauser July 8, 2016 at 6:04 pm #

        European copy of the bailout of 2007 only some of the names have been changed!
        same impaired balance sheets and cross ownership and Fed aided bailout!
        lets go to the beach before summer is over. EVERYONE GETS A BAILOUT EVEN NON BANKS THAT ARE WELL CONNECTED

      • tom kauser July 8, 2016 at 6:23 pm #

        there is a long impressive line of organizations waiting to aid the bailout? providing future considerations are substantial and the right people get the top positions.

      • tom kauser July 8, 2016 at 6:29 pm #

        its just credits until the swap

  5. Romaine pocat July 8, 2016 at 3:47 pm #

    Hi David,

    Thanks for the last post. Looks grim in Europe with banks.

    Just wanted to let you know that if I was from GB, I would be strongly supporting you for bid for leadership of Green Party. I sense you are one of the few honest people left in this world. Keep up the good work.

    Thanks,

    Biologique

    • Golem XIV July 8, 2016 at 4:17 pm #

      Thank You Romaine pocat,

      Its nice to hear. Someone I know told me they couldn’t vote for me because they want a woman leader, while I am handicapped by being a white middle aged middle class man. All of which is true of course. I am those things.

      And I understand how refreshing it is and necessary to have good women in positions of power.

      But it left me feeling a little sad anyway.

      • Romaine pocat July 8, 2016 at 4:59 pm #

        Well, the attitude should be, “may the best person win”. I do not like sexism in any form.

        Do not take such comments personally. She/he have their right to an opinion.

        Nicolas Hulot in France refused the offer to be Ecologist minister in France because he did not want his positions altered by politics. We need more such people with scruples.

        Keep fighting for what is right.

      • tom kauser July 8, 2016 at 6:18 pm #

        not really into him

    • Jenny August 15, 2016 at 5:20 pm #

      thanks for the links, just me; I have only found this page through the Green Party candidate for leader link. I believe I may have found the leader I want, Golem XIV

  6. Spartacus Rex July 9, 2016 at 10:34 am #

    Got any Real, Honest, Hard Money (Gold & Silver Coin)?

    “Wall Street had been doing business with pieces of paper; and now someone asked for a dollar, and it was discovered that the dollar had been mislaid.”
    ― Upton Sinclair

    Cheers,
    S. Rex

  7. shaun o'hara July 12, 2016 at 1:45 pm #

    good luck golem.

  8. william July 16, 2016 at 1:00 am #

    nice you are back

  9. Robin Smith August 5, 2016 at 8:12 am #

    So its not about banks per se then?

    Its also about the counter parties – the owners of real estate, on the other side of the mortgage contract, fully signed up.

    It’s a wonder how only banks are placed under scrutiny. Might this be because its heresy to bring the people under scrutiny as did Jesus. The people nailed him to a tree for it, not Pilate, contrary to the Christian doctrine I sense on this site.

    It would seem that those who blame banks are owners of real estate and its tax free, work free, unearned income. And the bigger the property owner the bigger the blame on the scape goat.

    No surprises they will nail him to a tree for pointing this out. Interesting collective psychology here – quasi religious.

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