Peugeot Gets Rescued

It was clear that Peugeot would eventually turn into France's version of GM – 'government motors', French style. Since the government would not allow Peugeot to close loss-making  plants in what will ultimately probably prove to be a vain attempt to 'save jobs', it was now forced to take the next logical step – namely to guarantee part of the company's debt. In the process, the government will naturally get more control over the company, which is in keeping with the Hollande administration's 'Zwangswirtschaft' program.

According to Bloomberg:


The French government stepped in to rescue PSA Peugeot Citroen, Europe’s second-largest carmaker, by guaranteeing as much as 7 billion euros ($9 billion) in new bonds in exchange for greater influence over company strategy.


The state and workers will each receive a seat on the board of directors, and an outside committee will be set up with veto power over any “significant” changes in Peugeot’s operations, the French Finance Ministry said today.


[…]

Peugeot needs the French state backing for its banking unit to keep down borrowing costs and offer customers competitive financing rates. Underscoring the urgency of the funding need, the carmaker predicted today that debt is set to increase 20 percent more this year than it forecast in July.


“The state will want to see this business run more in the interest of government, rather than in the interest of the shareholders,” said Erich Hauser, a Credit Suisse analyst with a neutral rating on the shares.


 

(emphasis added)

The government and workers will receive board seats? Are they sure this is going to work out? We believe that this latest socialistic experiment is highly likely to turn into a bottomless pit for France's tax payers.

Not surprisingly, competing car makers in other European countries are rather unhappy that an inefficient competitor is kept on artificial life support. They are perfectly right to complain. To keep companies that are not competitive artificially afloat harms the economy at large, but it is especially detrimental to more able companies in the same branch of industry.

However, the French government insists that it is actually not providing aid to Peugeot, and will therefore not run afoul of EU regulations that forbid such state aid. It is not giving aid, it is merely providing 'support'.


I see that certain of our competitors don’t see it with a friendly eye, but when the terms are presented you’ll see that it’s not state aid, but support,” Chatillon said at a Paris press conference. “This a very strong support from the state but not an aid in the technical sense. There is no reason to have difficulties in Brussels.”

 

(emphasis added)

You couldn't make this up if you tried.

Hang on, it gets even better. Guess who Peugeot is now in an alliance with to produce new cars consumers will – hopefully – want? You guessed it….GM, the original  'government motors':


The French automaker earlier this year entered into a strategic alliance with General Motors Co. in which GM became the second-biggest stakeholder. Peugeot said today it’s making progress with GM on the alliance and the two have selected four vehicle projects to work on together.”

 

Color us doubtful as to the likelihood of success.

 


 

Peugeot's share price: a never ending horror show – click for better resolution.

 


 

Peugeot Rescue Part of 'Quiet Bank Bailout'

Bloomberg reports that the Peugeot rescue, which is actually bailing out the company's financial arm, should be seen as part of France's 'quiet bank bailout', which by now amounts to more than €60 billion in toto ($78 billion).


France’s aid to PSA Peugeot Citroen SA's troubled finance arm brings the state’s backing for the nation’s banks to more than 60 billion euros ($78 billion).

The government yesterday said it will guarantee 7 billion euros in new bonds by Banque PSA Finance, the consumer-finance unit of Europe’s second-largest carmaker. The aid comes on top of support for Dexia SA (DEXB), the French-Belgian municipal lender, and for home-loans company Credit Immobilier de France.

“These bank rescues on the quiet should be getting more critical market attention,” said Bill Blain, a strategist at Mint Partners Ltd. In London. “We don’t know what’s next, but it certainly demonstrates that some of the specialized financial institutions remain very, very weak.”


The third such French bailout in the past year coincides with President Francois Hollande’s push for a European banking union and a common euro-area bank supervisor to break the link between lenders and governments. It also comes as the French government struggles to keep a pledge to cap its budget deficit at 3 percent of gross domestic product next year.  Specialized lenders have been hit by a liquidity crunch as a result of Europe’s debt crisis, leaving them with rising funding costs. Banque PSA, Dexia and Credit Immobilier de France all tapped the European Central Bank’s long-term loans.”


 


(emphasis added)


It's beginning to add up even before any of the bigger banks are in trouble.


 



 


A chart of net assets held by European banks as a percentage of host country GDP. The 'big three' French banks alone held assets amounting to 200% of France's GDP as of FY 2011. In the meantime they have reduced their 'risk weighted' assets, but have vastly increased their 'trading assets', i.e., mostly derivatives (chart via GS, zerohedge) – click for better resolution.


 


 

Whether by coincidence or not, a downgrade of France's banks was announced immediately thereafter – in what could perhaps be called less than fortuitous timing.


French Banks Downgraded

Standard and Poors has increased its 'economic risk score' for France from 2 to 3 (whatever that means…), and hence has decided to downgrade the credit ratings of a number of French banks as well as putting several banks on 'negative watch'. Among the 'big three', only BNP Paribas was downgraded, while Credit Agricole and Societe Generale got away with being put on negative watch for now. The details can be seen here.

Inter alia S&P reasons that the French housing bubble may come under pressure, however, it reckons that this will only have a negligible effect on France's banks (S&P: “We also consider that the economic environment for banking will become more demanding as the French housing market is in the process of correcting a build-up in housing prices, although we expect the impact on banks and the overall economy should be relatively limited”).

We wish all concerned good luck with that assessment, given that it would be a 'first'.

As 'thebubblebubble.com' reports regarding French house prices:


After zooming 120% from 2000 to 2008 and briefly dipping 5.6% in 2009, French property prices have continued their inexorable march higher since late 2009. French property prices are highly overvalued, currently valued at 135% of their historic price-to-income ratio and 150% of their historic price-to-rent ratio. [1] Though property prices are strongly rising throughout France, the French housing bubble is largely driven by the Paris region, where prices have jumped 18% in 2010 and approximately 10% in 2011, up more than 40% since 2005. Some posh districts in Paris have risen at a 27% rate in 2011.

France’s housing bubble was goosed by a 2009 law that was meant to stimulate the housing market by creating a significant tax incentive for buyers. Mortgage rates that plunged from 6.5% in late 2008 to 3.5% in 2011 were another major catalyst for soaring property prices, causing fixed-rate mortgage lending to increase by 73% by early 2011.

 

(emphasis added)

Surprise, another real estate bubble egged on by too low interest rates and a 'law meant to stimulate the housing market'. Prices in terms of rental income 150% above trend? Mortgage lending up 73%? What could possibly go wrong?

 


 

French house prices by region since 1965.  The mini-bubble of the late 1980's has turned into the major bubble of the 2000d's. (chart via thebubblebubble.com) – click for better resolution.

 


 

Nothing to see here, as they say.

Meanwhile, France's business climate is doing the socialist two-step to Zool. It is worth considering that previous declines in the business climate survey tended to coincide with falling house prices:

 


 

We would have raised the 'economic risk score' too. France's manufacturers fall into a state of double-plus unhappiness (chart via V. Flasseur/Reuters)

 


 

It seems possible that the bank bailout will eventually morph from a quiet into a somewhat less quiet one.

 

 

 

Charts by: bigcharts, bubblebubble.com, V. Flasseur/Reuters, Goldman Sachs/zerohedge


 
 

Dear readers, we are greatly honored by your readership and sincerely hope that our special mixture of entertainment and education continues to add a little value to your lives. As you can probably guess, our blog is not really a giant commercial enterprise, for that its readership is too exclusive and small. Nevertheless, running it involves not only time and effort, but also monetary costs. We are therefore starting another fundraising drive. You can help us reach our funding goal by either donating directly via Paypal or via Bitcoin.

 

Thank you for your support!

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

 
 

4 Responses to “France – Peugeot Bailed Out, More Trouble for the Banks”

  • QuorumLack:

    AFAIK Peugot was to lay off 3000 people. Now they are spending 7 billion euros of tax money so these people can keep their jobs.
    Socialism outdoing itself again.

  • jimmyjames:

    However, the French government insists that it is actually not providing aid to Peugeot, and will therefore not run afoul of EU regulations that forbid such state aid. It is not giving aid, it is merely providing ‘support’.

    ***********
    Maybe there’s some truth to this-when you take into account the new French tax hike to 85% and so when it gets sucked away at the expense of investors-it should help shore up the annual returns to government-
    So i guess ‘support’ isn’t to far fetched in a world of liars and since the word ‘aid’ doesn’t exist in a den of crooks-perhaps in their minds- they actually are being sincere?

  • The biggest joke is the government made money on these bailouts. Wall Street made money and the bondholders took it in the rear end.

    The big question is how long can the world financials agree to pretend and extend? It dawns on me that as long as those that run the banking system agree, the whole house of cards can continue as long as it is to the benefit of those involved for it to continue. Mutual Assured destruction in the financial system. Remember, government and banking are extractive industries. Plus each of their capacities to extract depend on the cooperation of the other. Any of them are declared insolvent, it might impair the capacity of the game to go on.

  • Crysangle:

    The behind the scenes government liabilities (and hence interests) via funding guarantees . I don’t think most people realise the amounts involved . Spain for example has already written off much existing FROB funding supplied to banks and placed it firmly on the nations books (hence the recent deficit revisions) , but there are state guarantees in many realms , and currently the figure for Spain stands at 313 billion eu of state guarantee for 2012 alone . That would be 30% GDP roughly . It gives an idea exactly what situation governments are placing themselves in .

    http://www.libremercado.com/2012-10-25/el-banco-malo-recibira-55000-millones-en-avales-publicos-en-2012-1276472376/ gives the Spanish figure.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • HelloThe Stock Market in Trouble - How Bad Can it Get?
      A Look at the Broader Market's Internals We have previously discussed the stock market's deteriorating internals, and in light of recent market weakness want to take a brief look at the broader market in the form if the NYSE Index (NYA). First it has to be noted that a majority of the stocks in the NYA are already in bearish trends. The chart below shows the NYA and the percentage of stocks above their 200 day and 50 day moving averages, which is 39.16% and 33.77% respectively. When...
  • mineGold Stocks at an Interesting Juncture
      A Fascinating Parallel We have recently discussed the sentiment and positioning backdrop in gold on two separate occasion, as it has once again reached rarely encountered extremes (see “Gold Panic” and “Gold and the Grave Dancers” for details).   Image via bullionstreet.com   Not much has changed on that front, except for the fact that small speculators have increased their net short position in COMEX gold futures to the highest level in nearly three decades last...
  • drop-water-gold-power-40854578Gold Stocks: A Playable Rally May Be Beginning as Junk Bonds Crater
      Gold Stocks Jump and Retrace 50% Last week we discussed the potential for a rally in the gold sector (see: “Gold Stocks at an Interesting Juncture” for details). Gold stocks jumped early in the week and then retraced almost precisely 50% of the initial move higher, in the process closing a gap that was left behind on Wednesday.   Image credit: dreamstime.com   Interestingly, for the first time in many months, there were three up days in a row prior to the...
  • gold rush copyA new Multi-Year High in Buying by Gold Sector Insiders
      Latest Data from INK Show A Huge Surge in Insider Buying As our friends at INK Research in Canada have pointed out to us, insiders at gold companies have made use of the recent sell-off in the sector to load up on shares to an extent not seen in many years.   Image source: bidness etc   The INK insider buy/sell indicator for gold stocks has peaked just one day after China's initial devaluation announcement at nearly 1,200%:   INK's gold insider sentiment...
  • 110570_Panem-et-circensesThe Trump Phenomenon
      Surprising Success We were wondering a while if there was anything we could say about the highly entertaining real estate mogul who has successfully hijacked the Republican nomination process – apart from the fact that he is sporting a haircut that looks a bit like a helicopter landing pad, endowing him with instant recognizability:   Teflon-Donald Trump, the unlikely front-runner with the interesting haircut Photo credit: Dominick Reuter / Reuters   Of course...
  • oil_3136994bIs Crude Oil Close to a Low?
      Panicky Headlines Everybody knows that there is a never-ending glut in crude oil, right? Who knew about it a year ago? Not everybody, that much is certain. The problem with what everybody knows is of course that it is often not worth knowing.   Photo credit: Alamy   Today a friend pointed two articles out to us that have been published yesterday and today. Their headlines say it all. The Wall Street Journal writes “No End in Sight for Oil Glut” - and proceeds to...
  • panic-buttonThe Stock Market's Panic Potential
      The Odds Favor a “Warning Shot” Scenario - but there is a “But” As regular readers have probably noticed, we have upped the frequency of our “caution is advised” posts on the stock market in recent weeks in light of the market's increasingly deteriorating internals. Although one never knows when exactly such warning signs may begin to matter, it is always a good bet that they eventually will. Last week the market delivered a little wake-up call to the hitherto rather...
  • USDCNY(Daily)The Donald and China, or The Fallacy of Protectionism
      Not Every Populist Topic is Worth Exploiting For reasons that will forever remain a mystery to us, mercantilism and protectionism actually hold enormous popular appeal. The best explanation we can come up with for this phenomenon is that the support for such policies is based on a mixture of economic ignorance and relentless propaganda by vested interests over the past, say, four centuries. Still, it is almost comical that people are so vociferously clamoring for policies that can actually...
  • rotoThe Economy is in Liquidation Mode
      Capital Consumption If you’re an American over a certain age, you remember roller skating rinks (I have no idea if it caught on in other countries). This industry boomed in the 1970’s disco era. However, by the mid 1980’s, the fad was fading. Imagine running a rink company at the end of the craze. You know it is not going to survive for long. How do you operate your business?   The birthplace of roller disco turned out to be edible, sort of Photo via...
  • gold closeupMonetary Metals Supply and Demand Report 9 August, 2015
      Withdrawing the Gold Bid Last week, we left off with this:   “Something is happening with gold…”   It began in Dec 2008. To understand it, it is necessary to understand two principles. The first is that gold is money and the dollar is credit, which currently has nontrivial value. A dollar is worth 28.4mg gold. To understand the second, let’s look at how markets work at the mechanical level.   An assortment of well-known bullion coins and bars from all...

Support Acting Man

Archive

Own physical gold and silver outside a bank

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com