Banks Bracing for 2012 Euro Financial Apocalypse, page 1

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Topic started on 17-11-2011 @ 10:05 PM by surrealist

CNBC

As the European debt crisis threatens to spiral out of control, banks are scrambling behind the scenes to protect their balance sheets and hedge their exposure to ride-out an increasingly scary 2012.

But while some of the moves may help mitigate the losses from Armageddon, market watchers say certain financial insurance policies — particularly credit default swaps on sovereign debt — may not work in a new financial crisis.

Banks are loading up on hedges against a possible European financial collapse. The notional amounts outstanding of over-the-counter derivatives rose 18 percent in the first half of 2011 to $708 trillion as of June 2011, a record high, according to a report by the Bank of International Settlements released Wednesday. In the second half of 2010, the notional value rose only by 3 percent.

Over the counter derivatives are private agreements between parties, different from derivative contracts that are traded through exchanges. The notional value of contracts provides a measure of market size, but not the actual measure of the value that is at risk among participants.

"Given all the increased volatility — the unusual conditions with the dollar and the euro, the debt crisis in Europe, the debt problems of the U.S. — you are seeing an increase in hedging," says Steve Wyatt, professor and Chair of the Finance Department at the Farmer School of Business at Miami University, Ohio. "The more astute observers in the market have come to the conclusion that the ECB will not buy enough paper to change the market view on this because of inflation fears. The only way out of this is fiscal integration or some modification of the membership in the Euro. That is not going to be quick or clean. That is the risk participants are hedging against."

Here's a quick snapshot of their exposure and hedges purchased, according to latest disclosures.
Citigroup has a net funded exposure to Greece, Italy, Ireland, Portugal and Spain of about $7.2 billion. That figure has been arrived at after netting out hedges worth $9.2 billion and margin and collateral of about $4.1 billion. In addition, Citi has $9.2 billion in unfunded commitments to the region.

Morgan Stanley said it had $2.1 billion in net exposure to the troubled five countries and $5.7 billion in gross exposure.
Goldman Sachs ha
s a gross exposure of $4.16 billion and a net exposure of $2.46 billion.

Bank of America has a gross exposure of $14.6 billion and has purchased credit protection worth $1.65 billion

JPMorgan Chase has a gross exposure of $20.3 billion and a net exposure of $15.1 billion after netting hedges worth $5.2 billion.

At the end of the day, he says, "the aggregate risk hasn't changed. All you are doing is transferring the risk. Someone else now is probably twice as risky. You are able to eliminate the risk from your portfolio but not from the economy."

Ho ho ho Merry Christmas! Here is the latest iteration of mass media end-of-the-world apocalyptic news. So basically what it is saying is that banks are scrambling to hedge against a European financial collapse, but that such evasive action cannot avert risk from such a meltdown where sovereign debts are involved. So banks in Europe and the US, and probably other parts of the world, will likewise feature among the fallout of a European financial collapse. Pretty cool eh?

reply posted on 17-11-2011 @ 10:07 PM by kilodelta

Is this also why our gas has been a higher lately here in the U.S.? I saw something on the news about it being up past $4 in some areas now - or is this not related at all?

reply posted on 17-11-2011 @ 10:56 PM by wavemaker

Here's a quick snapshot of their exposure and hedges purchased, according to latest disclosures.
Citigroup has a net funded exposure to Greece, Italy, Ireland, Portugal and Spain of about $7.2 billion. That figure has been arrived at after netting out hedges worth $9.2 billion and margin and collateral of about $4.1 billion. In addition, Citi has $9.2 billion in unfunded commitments to the region.

Morgan Stanley said it had $2.1 billion in net exposure to the troubled five countries and $5.7 billion in gross exposure.
Goldman Sachs ha
s a gross exposure of $4.16 billion and a net exposure of $2.46 billion.

Bank of America has a gross exposure of $14.6 billion and has purchased credit protection worth $1.65 billion

JPMorgan Chase has a gross exposure of $20.3 billion and a net exposure of $15.1 billion after netting hedges worth $5.2 billion.

Those figures, in billions of dollars, are nothing compared to what those banks got from the Fed which is in trillions of dollars. I don't think that "small" exposure of the banks will trigger their collapse. Besides, the Fed can always bail them out. Basically, they are bailing themselves out because those banks also own the Fed.

reply posted on 19-11-2011 @ 12:37 PM by rebellender

there are a lot of old dawgs here on ATS that think a few are just too gloomy. some say others are just pessimists. Meanly they poke fun and laugh and call "Fearmonger" and generally the flip sid is the word "Sheeple"

I dont buy into Quantum Thinking. I don't buy that we as a collective in thought can project an outcome. I am a Fatalist. In other words I get what is given me. Sometimes just like Baseball, "the hits just keep on coming."

This morning I wake up to this headline Wall Street: End of World

reply posted on 19-11-2011 @ 12:57 PM by rebellender

Originally posted by kilodelta
Is this also why our gas has been a higher lately here in the U.S.? I saw something on the news about it being up past $4 in some areas now - or is this not related at all?

This will be some of the reason for escalating gas prices Japan will need $3 bil/month in oil

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