Increasing Bank Fragility

BNP Paribas profits hit by exposure to Greek debt

BNP Paribas has reported flat profits after setting aside money to cover its exposure to Greek debt.

The French bank reported net profit of 2.12bn euros ($3.01bn; £1.85bn) for the three months to the end of June, up 1.1% from the same period last year.

It set aside 534m euros to cover its Greek exposure.

The second bailout for Greece is expected to lead to private sector creditors losing about 21% of their holdings.

BNP Paribas holds the most Greek debt of any of the French banks, about 5bn euros of sovereign debt, and was heavily involved in the discussions about private sector contributions to the bailout plan.

In a research note, analysts at Espirito Santo Investment Bank, said: "Divisionally, second quarter revenues from the corporate and investment banking business was the main disappointment, 6% lower than we were expecting."

The banking system globally is becoming increasingly fragile. Many banks have large exposure to marginal sovereign debt. Some earlier calculations I did indicated eventual losses on Greek debt in the neighborhood of 75%, considerably more than the 21% quoted in the article.

We can follow the risk using two indicators. First, the costs of Credit Default Swaps (default insurance), and Second, the price of gold, which has just hit another record high.

These troubling developments may lead to bank runs in the not too distant future. In the meantime, investors and corporations may increasingly accumulate cash for a "rainy day".


  1. I follow these blogs to understand what kind of business environment my children and I must deal with. I am a mother, small business owner, & scientist, I can do math/finance and have integrity un-like US Congress, but I do not hold gold or silver, because I do not know the dynamics of it. I estimate that UC congress will default on me and I will never recieve a dime of the withholding of my pay for ss/medicare that my business and I have paid over the course of my lifetime. I also estimate that at some time in future that my very small SEP retirement account (that I cannot withdraw from without penalties for years)will be "mandated" to purchase US government debt. Therefore, please help me understand this statement from Jesse's Cafe American blog.
    "The silver futures market is an accident waiting to happen, and a scandal of major proportions, in the process of slowly unfolding."

  2. Thank you Anonymous at 8:47 am for your candid and insightful comments.
    While I can not answer for Jesse on his comment, I will give my own take on the silver market.
    It is my interpretation that this market in particular of all commodities is sensitive to a large upward adjustment once the paper silver traders (hedge funds etc) who buy and sell using large amounts of leverage, say 50 to 1 or even 100 to 1, are caught with demand for delivery. Eric Sprott has both a physical gold and physical silver fund that is based on taking delivery of the actual metal, not just a paper claim. It is the suspicion of many in the blogging community that both the Comex and London Metals Exchange will be unable to supply the physical metal demanded if the integrity of the system is ever seriously questioned. With a fiat currency system backed by government debt and promises (in other words - nothing) and high amount of leverage, it seems intuitively that this system will fail. This is why I have protected myself with physical silver, gold and farmland. It is not a question of if this system will fail, it is a matter of when. So I am encouraged by your recognition of the problem and would suggest you consider some physical gold ownership. The vast majority of the public (perhaps 99%) have rejected or ignored this monetary metal with a 5000 year history of successful use and have placed their trust in fiat dollars.
    Woe to those who believe in fiat lies.


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