EU versus US: Equity Market Caps vs. Bank Assets


Hat tip Zero Hedge


Here is what Jefferies chief market strategist David Zervos had to say:

The bottom line is that it looks like a Lehman like event is about to be unleashed on Europe WITHOUT an effective TARP like structure fully in place. Now maybe, just maybe, they can do what the US did and build one on the fly – wiping out a few institutions and then using an expanded EFSF/Eurobond structure to prevent systemic collapse. But politically that is increasingly feeling like a long shot. Rather it looks like we will get 17 TARPs – one for each country. That is going to require a US style socialization of each banking system – with many WAMUs, Wachovias, AIGs and IndyMacs along the way. The road map for Europe is still 2008 in the US, with the end game a country by country socialization of their commercial banks. The fact is that the Germans are NOT going to pay for pan European structure to recap French and Italian banks - even though it is probably a more cost effective solution for both the German banks and taxpayers.

Where the losses WILL occur is at the ECB, where the Germans are on the hook for the largest percentage of the damage. And these will not just be SMP losses and portfolio losses. It will also be repo losses associated with failed NON-GERMAN banks. Of course in the PIG nations, the ability to create a TARP is a non-starter – they cannot raise any euro funding. The most likely scenario for these countries is full bank nationalization followed by exit and currency reintroduction.

Great stuff . . .

Category: Bailouts, Valuation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

39 Responses to “Bring on the Drachma TARP”

  1. Petey Wheatstraw says:

    Don’t worry — it’s contained (to Europe).

    Our numbers are better (if only because they are American numbers), and everybody knows numbers don’t lie.

    The Europeans are up to their eyeballs in shit. We’re only in it to just above our nostrils.

  2. James says:

    Yeah, but what about the Chinese cavalry:

    European Stocks Advance Amid Speculation China May Buy Euro Region Bonds

  3. wngoju says:

    can that leverage for the EU banks be right?

  4. CTB says:

    Leverage involves market cap? This metric doesn’t make sense to me. Are deposits and non-cash assets lumped together?

  5. chappietx says:

    BR, it appears that the potential carnage from the (inevitable it seems) Greek default are well understood and widely discussed in the MSM, yet the market does not seem to have priced it in (a 20% pullback in the US doesn’t seem to capture the myriad effects that would be felt by our multinationals.) What gives? Why do you think the market is NOT discounting the likely outcome? In 07-08 the MSM thought the problem contained and investors evidently felt the same therefore the market had a severe correction once it became known that there was not containment. How can the market ignore it again, there should at least some recency bias and also some impact bias that would have the market down more than it is. Are market participants in denial despite the overwhelming evidence that a negative is likely if not inevitable? Your thoughts would be greatly appreciated.

  6. MayorQuimby says:

    10:1 max. Should really be closer to 5:1. I know I know…NO FUN!

    One has to take into account the overall credit vs. GDP situation.

    Considering that, it is clear that both American and European banks are entirely insolvent and have been “lending” exponentially larger amounts of money completey unbacked by any ability to repay. Deflation cometh.

  7. wngoju says:

    I can find David Zervos on There is an announcement that he was hired in 2010 as head of global fixed income strategy. Nothing else about him. If you google him you find the ZH article. A bit of a mobius strip here.

  8. MayorQuimby says:

    Easier explanation…increasing leverage into an over-leveraged economy is a recipe for failure.

  9. MayorQuimby says:

    Add: NOBODY could have see this coming hahahaha

  10. machinehead says:

    French banking assets are four times its GDP?

    Not sure I believe that. US M2 money supply is only 60% of GDP.

  11. inequityoptions says:

    zervos worked at greenwich capital but left after the rbs acquisition. have worked with him, extremely sharp guy.

  12. Petey Wheatstraw says:

    MayorQuimby Says:

    “. . . it is clear that both American and European banks are entirely insolvent and have been “lending” exponentially larger amounts of money completey unbacked by any ability to repay. Deflation cometh.”

    This statement doesn’t make sense (at least, to me it doesn’t. It might if it said “default cometh.”) How can governments/central banks flood the economy with “money” that has no backing, but suddenly that “money” will become something of real value, and in short supply, no less? How and in what form would repayment take place, if not with more “money” backed by nothing? With fiat currency, there is no explicit expectation of repayment in anything but that which has been agreed upon, and that which has been agreed upon (more fiat money), has no set value in relation to anything else. Depending on circumstances, $20 has bought an ounce of gold, or a drink at a hotel bar; or groceries for a family of 4 for a week, or a single dinner at your local Outback.

    The banks are insolvent because the supply of fiat monetary units cannot settle the outstanding debt denominated in those very monetary units.

    The disconnect comes with the banks extending credit, but then refusing to issue enough “money” — at no cost to them, as it is backed by nothing — and then failing to issue enough currency to settle the resultant debt. THAT is how bubbles are blown and also how they burst.

    Are you calling for a standard? If so, what would it be?

  13. Moss says:

    The race is on to dump ‘assets’.

    Timmy is on his way over the pond to make sure a Lehman event does NOT happen until they have the printing presses ready. TPTB in the US, Europe, China and the even Brazil are all trying to buy some time with a relentless stream of chatter.

    I think China is saying they will only buy more Sovereign bonds if the fiscal agreements are in place.

  14. Petey Wheatstraw says:


    BTW: I do agree that the banks are insolvent, but they, alone, hold the remedy (in addition to being the disease).

  15. Transor Z says:

    Come on, wngoju, which Google are you using?

    David Zervos
    Managing Director and Chief Market Strategist, Jefferies & Co. Inc.

    David Zervos is managing director and chief market strategist at Jefferies & Co. Inc. in New York. During 2009, Zervos was a visiting advisor in the Division of Monetary Affairs at the Board of Governors of the Federal Reserve System in Washington, D.C. There he was involved in the development and monitoring of many of the new lending and purchase facilities put in place in response to the crisis of 2008. Prior to the Federal Reserve, Zervos held a variety of research, sales and trading positions in the private sector, most recently managing assets for Brevan Howard and UBS O’Connor. As a hedge fund manager, he traded a global macro-based strategy. Zervos previously spent 10 years in the research and sales departments at Greenwich Capital Markets and Swiss Bank Corp. He received a B.Sc. from Washington University, and holds an M.A. and Ph.D. in economics from the University of Rochester.

  16. toba says:

    Call me crazy but this idea of China saving Europe by buying their sovereign bonds is a bunch of baloney. Did Martians suddenly dump a pot of gold in the middle of Beijing?

  17. CHB says:


    Capital ratio = market cap/assets?

    Uneffingbelievable from the guy who touts himself as the no-bullshit champion.

  18. dead hobo says:

    1) Who will be writing “Bailout World”?

    2) Just think, 50 years ago they were referred to as the yellow peril. Now they’re the only ones with money. It’s all up to the Chinese to bail out Europe. They didn’t need bombs to take over. Only financial innovation, invented in the good old US of A and implemented by greedy morons and sophisticated thieves (both here an abroad).

    3) If I were in charge of China, I would plan to buy Europe at 50% or more off, pillage whatever was needed to repair the excesses of Chinese monetary expansionism from recent years, and thank Germany and France for being so supportive to the Greek problem.

    4) Another huzzah for financial innovation. Oil demand is declining but prices remain constant at high levels while reserves keep rising and discoveries keep surprising us all. It’s the tax that keeps on taxing … and it’s not only legal … it’s in fashion and defended as ‘supply and demand’, ‘peak oil’, and the daily headline that wears down anyone who notices oil prices are full of shit. Kudos to sub-retard regulators.

    5) Will any bankers be fired when Germany, France, and the others nationalize their banks in a couple of months?

    6) Are computers being paid or coerced to not throw in the towel?

  19. Liminal Hack says:

    If the EU insists on breaking itself up what will come out the other end is all the old currencies, but pegged to the US dollar.

    Their options re monetary policy are essentially to merge their fiscal and hence monetary operations or to surrender monetary sovereignty to ben en masse.

  20. MayorQuimby says:


    Think of it this way…at 10:1 leverage, 9 of 10 dollars has not been made good by real production. When you buy a car, you must post collateral (the car) and pledge to say make a car in the future. So….backing all of this credit is the pledge to make it all good. But of course as people make more money good, more credit enters the economy etc.

    It is a credit ponzi built off of real labor. So for the thousandth time…what backs money is people producing shit day in and day out. Governments do not print money, they extend credit! And credit can contract if it is not backed.

    If what you said were true, there would not even be the POSSIBILITY of a credit contraction because all money is just printed and therefore exists. No…it does NOT and HAS not ever worked that way because that would not work. It is not a game of Monopoly.

  21. toba says:

    Dead Hobo

    Not just oil. According to “rational markets” it’s peak ALL commodities. I never knew every single commodity was being depleted at rapid rates….according to these prices it must be the truth! It must be :)

  22. dead hobo says:

    toba Says:
    September 14th, 2011 at 3:07 pm

    Dead Hobo

    Not just oil. According to “rational markets” it’s peak ALL commodities.

    Of course, you are correct. Thank you.

  23. MayorQuimby says:

    Hint: banks are crating their own insolvency over time by excessive ‘lending’. Each loan is an asset so long as the cash flow is there but without the cash-flow, the banks obligations grow faster than the underlying cash flow can keep up which is why ALL credit must be backed by solid production and collateral. The Fed will have to exponentially print just to stave off deflation.

  24. endorendil says:

    As CTB and CHB mention, these metrics are pointless. Market capitalisation is not working capital, and assets are not liabilities, in fact they are the opposite. Total crock. What’s happened to this blog? It’s been getting really bad…

  25. dead hobo says:

    Liminal Hack Says:
    September 14th, 2011 at 2:58 pm

    If the EU insists on breaking itself up what will come out the other end is all the old currencies, but pegged to the US dollar.

    Someday, currencies will be valued by the real wealth of nations, as opposed to financial innovation. The real wealth of nations will be based on what the nation produces, not how cleverly it shuffles currency from one account to another. If China conquers Europe via rescue from financial innovation and keeps them working, the US is screwed. The US dollar will be based on the value of the national debt. China wins. Then everybody works for China.

  26. Liminal Hack says:

    “Someday, currencies will be valued by the real wealth of nations, as opposed to financial innovation.”

    Can’t possibly happen when money is around. The only way the above comes true is when money, and yes that includes gold, is dead.

  27. machinehead says:

    According to the ECB, the eurozone’s M2 money supply was 8,521 billion euros in July 2011:

    So how can France alone have banking assets of 8,000 billion euros, as the lower panel of the post claims?

    Obviously, it can’t. This is just a load of lying horseshit.

  28. inessence says:

    @CHB…?? JPM Tier 1 risk based capital ratio as of 6/30/11 = 9.32%, total risk based capital ratio as of 6/30/11 = 13.12%, leverage ratio as of 6/30/11 = 5.49%

  29. constantnormal says:

    What are the odds that amid all the almost-certain chaos, the global CDS house of cards is flattened? There is no auditing agency for credit default swaps, right? So with the total volume orbiting the globe being several times the global GDP, how many unbacked (or insufficiently backed) swaps does it take to bring it all down?

  30. Liminal Hack says:

    well thats why geithner is in europe right now.

  31. Eric Sebille says:

    CTB, CHB, Inessence

    The tier 1 ratios do not apply because the market is telling us that the assets are improperly marked. Sure JPM’s risk based capital may be 13.12%, but if they have $200 billion worth 40 cents on the dollar that are marked at par who cares what the traditional leverage metrics say.

  32. CitizenWhy says:

    Does the UK have a plan for pegging the pound sterling to the Irish punt should Ireland leave the Euro? I think so. The Queen’s visit was more than symbolic.

  33. Gaucho says:

    His last conclusion is right but his metrics and analysis is complete nonsense, clearly clueless about banking analytics. You cannot drive such conclusions without a better understanding and analysis of asset quality and expected losses. Certainly mkt cap driven by a herd of panicky investors is not the best basis to determine whether a bank is well capitalized or not. In addition, a few banks in Europe have been bailed out already, eg UBS, CS (privately) and ING and the Brits. And smaller banks have been collapsing already, eg Cajas. Is there a lot more coming? Sure yes, but you cannot drive such conclusion from jeffries analysis.

  34. Doctor Bang says:


    What was Wamu and Wachovia’s risk based capita and tier 1 ratiol when they went down?

  35. mobydivingdick says:

    Hello from Europe ( you know, the bastards that every day try to screw up your trading day )

    I wonder who wrote this piece of s*** analysis and more importantly how BR seems to bring some value to it ???

    Comparing market cap to bank assets is so stupid that it make me wonder why I am reading this site that used to be smart about all the BS heaped by the short community such as ZH.

    If I read this table, I am very much afraid for US banks because Mr Market seems to think so highly of all the Level III assets ( or subprime loans ) stuffed in their balance sheet that it discounts them very little …. so one might wonder who has the capacity to fall the hardest ??

    If we have learned one thing from the 2008 debacle , it is that in time of panic ( as of now ) everything get sold down at levels that make no sense whatsoever. I believe we are in one of this moment, as the use of such information is a good tell of how some people are switching off their brain.

    A reality check should be a better way to formulate a judgement : the banks ( all over the world ) have some problems thanks to the US of A and the wonderful management of the subprime mess. On top of it, we ( as in Europe ) have our share thanks to stupid political decision.

    So modesty should be in order, assessing the true value of assets, not the one given by the CDS nonsense and other derivatives tools.

  36. klim says:

    1/ As Gaucho said, the metrics is nonsense as assets quality is not taken into account.

    2/ Credit in Europe is mostly done by banks than by markets. That’s why assets are bigger in EU banks. But you should put in front deposit accounts. Indeed Eu banks are just intermediate between folks and credit issuers.

  37. victor says:

    China has all the money? She also has 300 million practically homeless willing to work for nothing, something US and Europe lacks. Scenario: China bails out the US and Europe. Collateral? Federal land and OCS (outer continental shelf) complete with mineral rights AND right to mine/drill/develop and ship to China. Europe’s collateral? France: The Louvre with Mona Lisa shipped to Beijing for safekeeping; Germany? Porsche, Mercedes Benz and BMW. Britain? The Royal family and all palaces; Prince Charles to be demoted to mere mortal. Italy? The Vatican, forget the non-sense it’s a separate country. Greece? The Parthenon plus all islands…Spain? Rafa Nadal….