Tag Archives: European Central Bank

Here’s a story that, if true (and Wolf Richter is generally very careful about what he posts), deserves a lot more attention than it’s getting. Brexit may have served as the excuse for a huge back-door bailout of European banks by the European Central Bank. From Richter at wolfstreet.com:

Dealing with a Financial Crisis under cover of Brexit Chaos

Remember TARP, the Troubled Asset Relief Program that the US Congress approved to bail out banks and other companies during the Financial Crisis? $700 billion were authorized, later reduced to $475 billion. The Treasury eventually dispersed $432 billion. I bring this up because the ECB bailed out the European banks with more than TARP, in just one day: on Brexit Black Friday.

The ECB saw what was happening to the shares of the largest banks on that propitious day. It saw a blooming financial crisis:

Top UK Banks:

HSBC, the apparent winner in this fiasco, perhaps because of its exposure to Asia, -1.4%
Barclays: -17.7%
Royal Bank of Scotland: -18.0%
Lloyds Banking Group: -21.0%

Top German Banks:

Deutsche Bank: -15.9% to €13.25, down 59% from April last year, possibly on the way to zero.
Commerzbank: -13.6%, to €6.20. The German government still owns nearly 16% of it as a result of the bailout during the Financial Crisis.
The third-largest German bank, KfW, is a state-owned institution, so taxpayers are automatically on the hook.

Top French banks:

BNP Parisbas: -17.4%
Credit Agricole: -14% (down 43% since last July).
Societe Generale: -20.6%. It apparently needs to find another low-level “rogue trader” to blame.

The fiasco that happened to the Spanish and Italian banks was so enormous that it sent stock markets into their largest one-day plunges on record, of over 12% [ Brexit Blowback Hits Italian and Spanish Banks].

The Stoxx 600 banking index, which covers the largest European banks, plunged 14.5% on Friday. It’s down 29.3% year-to-date, 42% from its 52-week high, and 76% from its all-time high in May 2007 before the Financial Crisis and the euro debt crisis knocked the hot air out of the banks.

But to keep panic at bay, Brexit and the resulting political crisis are used to cover up the blooming financial crisis.

And what a political crisis it is, not just for the UK, but for the EU. No one knows how this will end up. Businesses need certainty. They need to know what money they’re going to use next year, and what the trade and legal frameworks will be. They like to take those things for granted. But now, in the EU, no one can take anything for granted anymore.

Companies with cross-border operations – this includes all major banks and brokerages – have gigantic headaches, and the UK’s 2.2 million financial-sector employees are fidgeting on the edge of their chairs. It might take a couple of years for the UK to actually exit the EU, if it even happens at all, so there’s a little breathing room.

But where there’s apparently no longer any breathing room is with banks, and the ECB went into panic mode.

With bank stocks collapsing on Brexit Black Friday, the frazzled folks at the ECB decided it was high time to start bailing out the banks – and not dabble at the margins, but pull out the whatever-it-takes money-printing machine, and do so under the cover of Brexit chaos when no one was supposed to pay attention.

On Friday, the ECB pulled a huge magic trick, larger than TARP. Under one of its alphabet-soup programs – long-term refinancing operations (LTRO) – it handed teetering banks $399.3 billion, or $444 billion.

To continue reading: ECB Blows €400bn on “Brexit Black Friday” for Bank Bailouts