European Banks: As Safe as a Piggy Bank in

Somalia
Danny Russell, Oso Capital Research, October 2013
European Hopium
Since 2010, the pundits have continued to bang the drums insisting the
European Stocks were a buy
This includes: HSBC, MarketWatch, Forbes , Jim Cramers TheStreet.Com ,
USA Today , and many others
Even the famous Warren Buffett was
buying European Stocks at the end of 2011
All this enthusiasm, based on hope and optimism that hasnt come to fruition
with the Euro STOXX 50 growing at a 4.25% clip while the Dow Jones
growing at 19.64% a year
19.64%
4.25%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
DJIA FEZ
European Hopium Results
CAGR
Source:StockCharts,
European Banks Versus The World
The Worlds Non-Performing Loans
(NPL) are about half of what Greeces
and Italys NPLs are
BNP Paribas self reports its NPLs ex
Greek Debt
That should tell you all you need to know to
short every bank in Europe you can
The Capital to Asset Ratio in the
Eurozone is about ! that of the World
average and almost half of the US
capital ratios

0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
Average Bank Capital-to-Asset Ratio 2009-2012
Average Bank
capital to assets
ratio (%)
World Average
Bank capital to
assets ratio (%)
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
Average NPL's 2009-2012
Average NPL as
% of Gross Loans
World
Source: WorldBank
Notes: BNP Paribas is ex Greek Debt,
Banco Santander self-reported data
If 2012 Data wasn;t listed the 2011 Numbers were used
Source: BNP Paribas, Banco Santander, World Bank, ,
Spanish Banking System
Since the beginning of the Euro crisis Spanish Banks have continued to have
exponential growth in bad debts
Adding to the bad debts the loans as a percent of deposits took a large hit in
2010, now at the lowest yearly level since 1998
Without loans NIMs get hit and the entire banking system spirals downwards
$0.00
$50.00
$100.00
$150.00
$200.00
$250.00
0
200
400
600
800
1,000
1,200
M
i
l
l
i
o
n
s

M
i
l
l
i
o
n
s

Spanish Doubtful Debts & Mortgage Loans
Mortgage Loans
(LHS)
Doubtful Debtors
(RHS)
Source: Banco De Espna
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
0%
20%
40%
60%
80%
100%
120%
Spanish Loans to Deposits and Doubtful Loans
Spain Credit
System
Domestic
Loans to
Credit System
Domestic
Deposits
Spain Doubtful
Assets to Total
Deposits
Source: Banco de Espaa,
Italian Banking System
Italian Banks had a grace period with the initiation of the EUR
When the crisis hit the EUR deprecated and the Bad Debts skyrocketed
Currently the EUR is in a range while the Bad Debts to Deposits keep climbing, this
would be partially the ECB and Fed printing an inordinate amount of money
Fixed Assets of Banks has decreased to its lowest level since 1998
Lowering retail banking locations through lower fixed assets, makes it hard to gather deposits
With no deposits how do Italian Banks expect to make loans?
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
Italian Loans and Fixed Assets
Banks - Total
Loans to Banks-
Total Liabilities
Italian Banks -
Fixed Assets to
Banks-Total
Liabilities
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8 0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
Italian Banks- Bad Debts to Total Loans & EURUSD
Italian Banks- Bad Debts to Total Loans EURUSD (Inverted)
Source: Banca dItalia
U.S.A. Banking System Best of the Worst?
Where European Banking systems have an exponential move up in Bad
Debts as a Percent of Loans the US Banks are moving in the opposite
direction
The Total Mortgages are at the lowest nominal level since 4Q2005
The US is the best of the worst or the cleanest shirt in a dirty basket
Source: Federal Reserve FRED
European Macro Deviates from European Markets
Since June 2013 the EU Macro Data has correlated very closely with EU
Stocks
In early October 2013, the Macro data and EU Markets deviated from each other
The Eurozone private-sector loan growth came out recently and it was
incredibly disappointing, coming in at -2% YOY
Source: ZeroHedge, Bloomberg, ECB
The Obvious Trade
I have been short EUFN since June
2013 and have been down almost the
entire trade
I believe this trade is the right and you
should continue to short the EUFN
(European Banks)
The top 10 holdings of EUFN make up
42% of the fund and include some of
the worst European Banks
United Kingdom
33%
Switzerland
13%
France
12%
Spain
11%
Germany
11%
Sweden
7%
Italy
6%
Netherlands
4%
Belgium
2%
Finland
1%
EUFN Geographic Breakdown
Company Percentage of Fund
HSBC HOLDINGS PLC 10.85%
BANCO SANTANDER SA 5.40%
UBS AG-REG 4.08%
ALLIANZ SE-REG 4.02%
BNP PARIBAS 3.84%
BANCO BILBAO VIZCAYA
ARGENTA
3.70%
BARCLAYS PLC 3.56%
STANDARD CHARTERED PLC 3.07%
LLOYDS BANKING GROUP PLC 3.02%
PRUDENTIAL PLC 2.71%
Source: Ishares, StockCharts.com
Disclosure
This is not a recommendation, this presentation is purely for educational
purposes
For more disclosures and to read more about the Global Macro Environment
please visit www.OsoCapitalResearch.com
Oso Capital Research
A Bearish Voice in a Forest Full of Bulls