28 June 2008

More Warnings from Europe: Fortis Bank Forecasts a US Financial Market Meltdown

We won't disagree with the forecast, although timing may be another matter, and we do have our 'talking their book' filters in place.

As background, Fortis has been making some moves to raise 8 billion euros in capital, and the stock was sold sharply in a share offering last week, out of fears of shareholders dilution and further troubles at the bank.

Interestingly enough, Fortis is part of the tripartite acquisition of ABN Amro, along with Banco Santander and the Royal Bank of Scotland, the largest bank takeover in history. The US retail operations were separately taken by Citigroup. ABN Amro was one of the largest banks in Europe and had operations in about 63 countries around the world.

RBS issued a similar dire prediction of the US financial crisis around 17 June. We just thought it was striking that both banks issued such forecasts about this time. Barclays issued a similar forecast last week. Something ugly in those balance sheets?

Warnings from Europe ahead of a US crash which is ignored by the American media and dismissed by the financerati have an historic resonance, as in the case of the stock market crash of 1929.

We think there is a strong probability of a dead cat bounce that may turn into a multi-day short squeeze relief rally within the next two weeks, barring fresh disclosures and confessions from the corporate crowd.

There are a number of pros expecting the same thing, as they did on Friday past. So you can see we are cautious, and back into our short term 'advantageous' trading posture. The narrower index charts show the breakdowns are in progress, and we may be over the edge, but the broader market indices are inconclusive. This may actually be quite bearish since the bulk of the market shows little fear yet and the VIX is at moderate levels for this bear market leg.

Oil is an interesting market. Is it a bubble driving by 'speculation' or a flight to safety haven for those disaffected by the US dollar, and without further desire for the euro? Is oil a sustainable world 'currency?' Perhaps its industrial demand is a two-edged sword in this discussion.

One thing we like about gold and silver is that they keep only one set of books, and nothing is off balance sheet, although the same might not be said of the Central banks that often muddy their markets.

Fortis Story roughly translated into English

American 'Meltdown' Reason for Capital Raising - Fortis
28th of June, 9:10
De Financiële Telegraaf

Fortis Bank predicts US Financial market meltdown within weeks...

BRUSSELS/AMSTERDAM - Fortis expects a complete collapse of the US financial markets within a few weeks. That explains, according to Fortis, the series of actions by the bank of last Thursday to raise €8 billion. "We have been saved just in time. The situation in the US is much worse than we had thought", says Fortis chairman Maurice Lippens. Fortis expects bankruptcies amongst 6000 American banks which have a small coverage currently. But also with Citigroup, General Motors, a complete meltdown in the US is beginning."

Amerikaanse ’meltdown’ reden geldinjectie Fortis - De Financiele Telegraaf

Fortis expects no more capital raising
Sat Jun 28, 2008 9:59am BST

BRUSSELS, June 28 (Reuters) - Measures taken by Fortis to shore up its finances should be sufficient, the Dutch-Belgian bank's supervisory board chairman told Belgian financial daily L'Echo on Saturday.

Chairman Maurice Lippens, asked if there was a chance that further capital-raising measures will be announced, replied: "Normally, it's sufficient. Of course, if this is a return to 1929, then we are in a different ball game."

Fortis raised 1.5 billion euros ($2.36 billion) from a heavily discounted share issue this week, part of a package of measures to shore up its finances by more than 8 billion euros.

Lippens said Fortis has been the victim of speculators and wondered how much money certain -- unnamed -- hedge funds made.

"Besides, Thursday's step was completely successful," Lippens said.

He also backed Fortis Chief Executive Jean-Paul Votron.

"You don't kill the captain in a storm," Lippens said.

The drop in Fortis' share price -- down more than 40 percent so far this year -- has not made the company a takeover target as other banks also have their problems, he added...