Dexia is the European bank that may bring the financial chaos of its periphery to its core. Dexia is broke again, yes - AGAIN, and once again is likely to get a bailout. If memory serves me correctly, Dexia was also the largest borrower of US$ from the US Fed!
The following short article explains the problem, with a few personal comments in between.
The following short article explains the problem, with a few personal comments in between.
It's déjà vu all over again for Dexia. Just like in 2008, Franco-Belgian municipal lender Dexia is in need of a bailout. (Dexia should have been broken up nearly 4 YEARS ago to avoid this continuing nonsense)
Except this time, the support looks like a stop-gap to allow an orderly wind up. The question now becomes whether this means taxpayers will be called on to take losses so that bondholders can be spared. (It's a question? Sadly, it is not. The taxpayer will get screwed again to save the wealthy (read: bondholders)
The French and Belgian governments, both part-owners of Dexia thanks to the previous bailout, committed Tuesday to safeguarding the bank's depositors and creditors. Even if this support calms markets short-term, the maneuver poses the danger of transferring more risk from the private sector to the public one. (Ya think?)
That game, which caused Ireland so much pain, can only go on for so long. (NO, no, no...it can go on 4evvah!)
Dexia also underscores how fragile European banks remain. Despite three years of restructuring, it remains a highly-leveraged municipal lender with a major financing gap and significant exposure to Greece, Italy, and Spain.
While Dexia had loans of €518 billion at the end of June, its Belgian and Turkish retail-banking operations provide a deposit base of just €88 billion. Meanwhile, the bank's short-term funding gap remained a hefty €96 billion. And although Dexia has secured long-term financing for this year, roiled bond markets mean 2012 could be challenging.
Capital is also a problem. Losses on sales of toxic assets shrank Dexia's core Tier 1 ratio to 10.3% at June 30 from 12.3% three months earlier. Plus, the bank still holds €1.4 billion of Greek government debt maturing before 2020 compared with total equity of €8.8 billion. (The truth: Dexia is holding garbage and calling it "equity." It is WORTHLESS.)
With that in mind, Brussels and Paris seem ready to bite the bullet by flogging Dexia's good assets and creating a "bad bank" to lodge the undesirable business for sale later.
The trouble is, with the euro zone economy slowing and markets in turmoil, taxpayers could be left holding the baby for a long time to come.
(You can, ahhh, "take that to the bank!")
Trade Date: 10/5/11
E-Mini S&P Trades*
(before fees and commissions):
E-Mini S&P Trades*
(before fees and commissions):
1.No "Secrets" trades were filled.
2. Algorithm positions (2)
3. "Reading the Tape" positions (4) ...combined Secret's, Algo, & "Reading the Tape" total...+2.25
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