The Truth About Europe’s Banks … And Ours

From Phoenix Capital Research (via ZeroHedge):

Europe is Safe… Just Ask Spanish Depositors… Who Have Lost EVERYTHING

Anyone who wants to get an inside look at both the European banking system and the politicians in charge of fixing it need to only look at Spain’s Bankia.

Bankia was formed in December 2010 by merging seven totally bankrupt Spanish cajas (regional banks that were unregulated). The bank was heralded as a success story and an indication that European Governments could manage the risks in their banking systems.

Indeed, in 2011, Bankia even reported a profit of €41 million. And in April 2012, it was proposing paying a dividend. Then, in the span of two weeks, the bank revised its 2011 profit to a €3.3 billion LOSS, requested a formal bailout from Spain, and had to be nationalized.

What’s striking about this sequence of events is that throughout it, Spain’s Prime Minister Mariano Rajoy was claiming that Spain’s banks were in great shape. Indeed, on May 28 2012, (after Bankia had already requested a €19 billion bailout, the single largest bailout in Spanish history), Rajoy stated , “there will be no rescue of the Spanish banking sector.”

Bear in mind, Spain itself was just days away from requesting outside aid from the EU…

Fast forward to December 2012, and Bankia is again in the news, this time with Spain revealing that despite receiving the largest bailout in Spanish history, the bank still had a NEGATIVE value…

At this point the following is obvious:

1. Europe’s banks are in far far worse shape than anyone publicly admits
2. The political class in Europe has no idea how to solve this mess
3. No one has quantified the bank’s actual losses or their capital needs
4. Everyone is lying about just about everything related to Europe’s financial system

…

It’s 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.

And this in a nutshell is Europe’s financial system today: a totally insolvent sewer of garbage debt, run by corrupt career politicians who have no clue how to fix it or their economies… and which results in a big fat ZERO for those who are nuts enough to invest in it.

Be warned. There are many many more Bankias coming to light in the coming months. So if you have not already taken steps to prepare for systemic failure, you NEED to do so NOW. We’re literally at most a few months, and very likely just a few weeks from Europe’s banks imploding, potentially taking down the financial system with them. Think I’m joking? The Fed is pumping hundreds of BILLIONS of dollars into EU banks right now trying to stop this from happening…

A couple of things worth noting.

Our Aussie banking system is massively leveraged to our housing bubble, and only survived the GFC thanks to being backstopped by the government (using the “government guarantee” of access to taxpayers’ future earnings as collateral).

And in March last year, we saw in The Bank Deposits Guarantee Is No Guarantee At All that your savings are not as safe as you may believe:

There is a hidden flaw in the government’s Bank Deposits Guarantee scheme. One which renders the guarantee largely useless.

The Government Guarantee is just another con-fidence trick, to prevent another bank run … like the silent bank run we had during the GFC peak in late 2008.

Richard Gluyas at The Australian has the story of the Great Big Government Bank Deposits Guarantee … that isn’t (emphasis added):

… There is no doubt that the guarantee, reduced last month to a permanent cap of $250,000 per person per institution, has facilitated the stampede into term deposits.

Flows into products like mortgage funds, and even the booming annuities market, have suffered as a result.

But the question is whether the stampede would be slowed if bank customers read the fine print of the guarantee.

How many of them would know, for example, that the standing appropriation to meet any initial payout of deposits is limited to $20 billion per failed bank?

It might seem like a lot, but it pales when compared to about $200bn in eligible deposits for each major bank.

In the highly unlikely event of a major bank failure, any payments under the Financial Claims Scheme would be recovered through the liquidation of the bank.

An industry levy would be applied if there’s a shortfall from a realisation of assets.

But the fact remains that the initial payout is effectively capped by legislation at $20bn, albeit with provision for the government to go back to the parliament for more.

There is no mention of any of this in Swan’s press release.

After reading that document, you’d come away thinking that the government will cough up for pretty much all bank deposits of less than $250,000 in full.

The reality, though, is that the guarantee underwrites an initial payment, which then gives way to other measures.

The only winners in the banking game … are the bankers.

Everyone else is a loser.

Whether they real-eyes it or not.

Tags: bankia, banking crisis, banksters, EU debt crisis