BlueCrest's Platt: Europe banks insolvent

Bloomberg ran an interesting article in which hedge fund managers discussed how Europe's banks are insolvent and how depositor runs will continue where the viability of the sovereign's deposit guarantee is in doubt.

Michael Platt, founder of the $30 billion hedge fund BlueCrest Capital Management LLP, said most of the banks in Europe are insolvent and the situation will worsen in 2012 as the region’s debt crisis accelerates. 

Kyle Bass, the Dallas-based hedge-fund manager who said in 2009 there would be sovereign defaults within three years, said Greek, Portuguese and Spanish depositors will withdraw money from banks in the coming months. 

“I do not take any exposure to banks at all if I can avoid it,” Platt, 43, said today in an interview on Bloomberg Television’s “Inside Track With Erik Schatzker.” If European lenders had to mark their books to markets every day in the same way hedge funds do, most would be proven “insolvent,” he said. 

The European Banking Authority demanded this month that the region’s banks raise 114.7 billion euros ($149 billion) in fresh capital to withstand writedowns on Greek bonds and other sovereign debt. Attracting additional funds may be challenging as lenders are suffering from depressed share prices and lack of confidence from investors.... 

“As European leaders press forward with failed attempt after failed attempt to suppress borrowing costs, control spending, reduce deficits and prop up what the markets have already told us is a broken monetary system, the data tells us that the citizens of the most troubled and profligate nations are losing confidence in the euro dream,” Bass, who runs Hayman Capital Management LP, said yesterday in an investor letter, a copy of which was obtained by Bloomberg News. 

Bass, who made $500 million with bets on a U.S. subprime- mortgage market collapse, said trust and confidence in the European economy has been lost and sovereign defaults are “imminent.” ...

Latvians pulled about $54 million from local Swedbank AB (SWEDA) automatic teller machines on Dec. 11 and 12 on speculation customers wouldn’t be able to access their funds. 

“The rumors were knowingly distributed with the goal of destabilizing the situation in Latvia,” Prime Minister Valdis Dombrovskis said, according to the Leta newswire. 

In Greece, business and household bank deposits have slumped 26 percent in the past two years to 176 billion euros, and fell in October by the most since the nation joined the euro, according to the Bank of Greece. (TELL) There were 2.24 trillion euros of overnight deposits with euro-region financial institutions at the end of September, down from 2.26 trillion in July, according to data compiled by Bloomberg. 

“Just as Latvians ran to the ATMs this weekend, so will depositors all over peripheral Europe in the months ahead,” Bass, whose hedge fund oversees $948 million, said in the letter. “Deposits are now declining at an accelerated pace. What’s surprising is that it hasn’t happened much sooner.”... 

BlueCrest has avoided buying assets put up for sale by banks that are trying to deleverage because of concerns about liquidity, Platt said. The financial meltdown of 2008 showed how quickly holdings can become hard to sell at the same time hedge fund investors are forcing sales by trying to pull their money out of the industry, he said. 

“I would not touch them with a barge pole,” he said. “The major opportunities will come post-blowout.”