By the look of things, Europe’s banking system is breaking down again.
Bankia’s shareholders have received a nasty new year’s surprise. They may lose most of their investments or even all of them says the Spanish bank rescue fund in its latest report.
According to FROB, the Fund for Orderly Bank Restructuring, Bankia has a negative value of 4.2 billion euros, and its parent group BFA is 10.4 bn in the red.
Valuation is key in the recapitalisation of Spain’s banking system, weighed down by massive bad loans accumulated in a property bubble that burst in 2008. Bankia/BFA is set to receive 18 bn euros of European aid, and become the country’s biggest bailout recipient.
Greece’s four largest banks need to boost their capital by 27.5 billion euros ($36.3 billion) after taking losses from the country’s debt swap earlier this year, the largest sovereign restructuring in history.
National Bank of Greece SA, the country’s biggest lender, needs to raise 9.8 billion euros, according to an e-mailed report by the Athens-based Bank of Greece (TELL) today. Eurobank Ergasias SA (EUROB) needs 5.8 billion euros, Alpha Bank (ALPHA) needs 4.6 billion euros and Piraeus Bank SA (TPEIR) needs 7.3 billion euros, according to the report. Total recapitalization needs for the country’s banking sector amount to 40.5 billion euros, the report said.
The above articles tell us point blank that Europe’s banking crisis is neither fixed nor even close to over.
Consider the article on Spain.
A little known fact about the Spanish crisis is that when the Spanish Government merges troubled banks, it typically swaps out depositors’ savings for shares in the new bank.
So… when the newly formed bank goes bust, “poof” your savings are GONE. Not gone as in some Spanish version of the FDIC will eventually get you your money, but gone as in gone forever.
This is why Bankia’s collapse is so significant: in one move, former depositors at seven banks just lost virtually everything.
In the case of Greece, the above article needs some perspective. Sure, €27.5 billion sounds like a lot of money, but just how big is it relative to Greece’s banks.
The entire capital base of the Greek banking system is only €22 billion.
By saying that Greek banks need €27.5 billion Greece is essentially admitting that is needs to recapitalize its entire banking system. Also, you should know that Greek banks are still sitting on €46.8 billion in bad loans.
There is a word for a banking system with a capital base of €22 billion and bad loans of €46.8. It’s INSOLVENT.
Take note, the EU Crisis is anything but over. The ECB may have pushed it back by a year by promising unlimited bond buying… but that relief rally is coming to an end.
With that in mind, smart investors are taking advantage of the lull in the markets to position themselves for what’s coming.
We offer several FREE Special Reports designed to help them do this. They include:
Preparing Your Portfolio For Obama’s Economic Nightmare
What Europe’s Crisis Means For You and Your Savings
How to Protect Yourself From Inflation
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