CRASH 2: Dexia’s Greek debt write-down fears spread to BNP, SocGen….and the US

Once again, mendacious bank accounting makes a bad situation awful

The world has been having just the tiniest sip today of a rank brew from which it must drink copiously in the coming months. The half-French Dexia Bank mess is now infecting BNP and SocGen….with ripples stretching across the Pond to America, where Dexia is in the big league of US municipal lenders.

Unbelievably – given the depth of the current crisis – Dexia SA (DEXB), BNP Paribas SA and Societe Generale SA are still resisting pressure from regulators to accept more losses on their holdings of Greek government debt.

They already face broad and loud criticism in the markets for not having written off the full amount they’re likely to lose. Earlier today I posted about sovereign spin…but the lenders’ bean counters are every bit as bad. (Memo to Self: It’s the culture, stupid)

While most banks have written off Greek debt to around half – although the increasing likelihood is that they’ll lose 100% of the amounts outstanding – Dexia (and France’s two biggest lenders) have only marked the losses down at 21%. Between them, this trio of clowns stand to lose 3 billion euros more than they told the regulators. Now wasn’t that smart, eh?

This does, of course, go a long way to explaining the deep intransigence of the banks when it comes to accepting 50% haircuts.

During the morning BST, observers got around to spotting that the three institutions had been among the worst performers in  Bloomberg’s Europe Banks and Financial Services Index published yesterday. Now all three sit firmly in the frame for potential collapse; although The Slog still believes that BNP Paribas has the biggest (if not the most immediate) problem.

By contrast, Dexia’s chief issue appears to be a colossal need to service short-term borrowing itself. A Dexia crash – now thought in most financial quarters to be inevitable without a massive bailout from Paris – will affect cities and towns in every region of the United States.  Dexia is a major player in the $2.9 trillion market for municipal debt. (There’s that T-number again)

Dexia’s shares have fallen 23% this week alone. Said Jane Foley of Rabobank, “Dexia’s problems stress the point that for euro-zone leaders the Greek crisis is less about Greece, and more about the potential for it to spark a much more widespread banking and economic disaster”.

Let me end this post on a parochial note, if I may. UK Chancellor George Osborne got a standing ovation at the Conservative Party conference in Manchester yesterday for coming up with what I regard (having looked at it) as a clever if as yet half-baked scheme for jiggling about with bond issuance in order to get money to emerging businesses in the SME sector (small and medium sized enterprises).

He is doing this because the banks won’t. I would go further: he is doing this – and risking yet more taxpayers’ money – to go round the banks as if they were some kind of Maginot Line….as opposed to the first line of lending for the more dynamic end of British business.

This kind of unwillingness to tackle the banks is insanely quixotic and pathetically weak. It goes to illustrate still further the post I wrote last week about power drifting into the hands of unelected money. The very institutions only able to conduct business at all in 2011 because we bailed them out in 2008 now steadfastly refuse to do what is clearly right for the country. They prefer Big Merger to help and renewal.

The banks are amoral, commercial anti-matter standing in the way of healthy economic growth and social rebalancing. Our civilisation is appeasing both Mammon and Islam, both of whom have the potential to put free-thinking humanity in chains. Future generations will rightly castigate us for so doing.