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


 
 

Emigrate While You Can... Learn More

 
 

 
 

Dear Readers!

It is that time of the year again – our semi-annual funding drive begins today. Give us a little hand in offsetting the costs of running this blog, as advertising revenue alone is insufficient. You can help us reach our modest funding goal by donating either via paypal or bitcoin. Those of you who have made a ton of money based on some of the things we have said in these pages (we actually made a few good calls lately!), please feel free to up your donations accordingly (we are sorry if you have followed one of our bad calls. This is of course your own fault). Other than that, we can only repeat that donations to this site are apt to secure many benefits. These range from sound sleep, to children including you in their songs, to the potential of obtaining privileges in the afterlife (the latter cannot be guaranteed, but it seems highly likely). As always, we are greatly honored by your readership and hope that our special mixture of entertainment and education is adding a little value to your life!

   

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:

  • snake-charmerGold Price Skyrockets in India after Currency Ban – Part III
      When Money Dies In part-I of the dispatch we talked about what happened during the first two days after Indian Prime Minister, Narendra Modi banned Rs 500 and Rs 1000 banknotes, comprising of 88% of the monetary value of cash in circulation. In part-II, we talked about the scenes, chaos, desperation, and massive loss of productive capacity that this ban had led to over the next few days.   Indian prime minister Narendra Modi – another finger-wagger, as can be seen in this...
  • wads-of-cashGold Price Skyrockets in India after Currency Ban – Part II
      Chaos in the Wake of the Ban Here is a link to Part 1, about what happened in the first two days after India's government made Rs 500 (~$7.50) and Rs 1,000 (~$15) banknotes illegal. They can now only be converted to Rs 100 (~$1.50) or lower denomination notes, at bank branches or post offices. Banks were closed the first day after the decision. What follows is the crux of what has happened over the subsequent four days.     India's prime minister Nahendra Modi, author of the...
  • shopGold Price Skyrockets in India after Currency Ban – Part IV
      A Market Gripped by Fear The Indian Prime Minister announced on 8th November 2016 that Rs 500 and Rs 1,000 banknotes would no longer be legal tender. Linked are Part-I, Part-II and Part-III updates on the rapidly encroaching police state. The economic and social mess that Modi has created is unprecedented. It will go down in history as an epitome of naivety and arrogance due to Modi’s self-centered desire to increase tax-collection at any cost.   Indian jewelry...
  • very-bad-boyA Note on Gold and India – What is Driving the Gold Price?
      Hidden Motives It is well-known that India's government wants to coerce its population into “modernizing” its financial behavior and abandoning its traditions. The recent ban on large-denomination banknotes was not only meant to fight corruption.   Obviously, this very bad Indian has way too much cash. Just look at him, he looks suspicious! Photo via thenewsminute.com   In fact, as our friend Jayant Bhandari has pointed out, fresh avenues for corruption ...
  • sittingWill Trump Do What Reagan Couldn’t?
      Depravity and Degeneration BALTIMORE – Finally, it’s over. We were both delighted and appalled by the news. A smile spread over our face... and our steps lightened... as we looked ahead to four years without Hillary Clinton’s know-it-all mug in the news.   Praise be! This mug will be largely missing from the airwaves and the intertubes in coming years. And your caption scribbler PT won't have to look for a fall-out shelter! We thank the Lord and the American public for...
  • gold-pm-fixIndia's Currency Debacle – An Interview with Jayant Bhandari
      A Major Crisis Last week Jayant Bhandari related the story of the overnight ban of certain banknotes in India under cover of “stamping out corruption” (see Gold Price Skyrockets In India after Currency Ban Part 1 and Part 2 for the details).   Banned 500 rupee banknotes   The problem is inter alia that the sudden ban of these banknotes has hit the Indian economy quite hard, given that 97% of all transactions in the country are cash-based. Not only that, it has...
  • winInflation Expectations Rise Sharply
      Mini-Panic Over Inflation After Trump's Election Victory We have witnessed truly astonishing short term market conniptions following the Donald Trump's election victory. In this post we want to focus on one aspect that seems to be exercising people quite a bit at present, namely the recent surge in  inflation expectations reflected in the markets. Will we have to get those WIN buttons out again?   A 1970s “whip inflation now” button. The only thing that was actually needed...
  • vigilantesWill the Swamp Swallow Trump?
      Permanently Skewed TRUMP HOTEL, New York – Trump’s rambling army – professionals, amateurs, camp followers, and profiteers – is marching south, down the I-95 corridor. There, on the banks of the Potomac, it will fight its next big battle.   Lieutenants in Trump's army: Bannon, Flynn & Sessions Photo credit: Drew Angerer / AFP   Here at the Diary, we do not like to get involved in politics. But this is a special time in the history of our planet – a...
  • santorinigreeceThere Are Two Types of Credit — One of Them Leads to Booms and Busts
      Stumped by the Bust In the slump of a cycle, businesses that were thriving begin to experience difficulties or go under. They do so not because of firm-specific entrepreneurial errors but rather in tandem with whole sectors of the economy. People who were wealthy yesterday have become poor today. Factories that were busy yesterday are shut down today, and workers are out of jobs.   What has caused the bust? The modern-day economic orthodoxy continues to be unable to provide...
  • train-to-hellAll Aboard! Trump’s Express Train to the Future
      Free Money! BALTIMORE – Last week, the Dow punched up above 19,000 – a new all-time record. And on Monday, the Dow, the S&P 500, the Nasdaq, and the small-cap Russell 2000 each hit new all-time highs. The last time that happened was on the last day of December 1999.   Ironically, two events that were almost universally expected to trigger large stock market declines were followed by quite rapid and strong gains. Would the market have fallen if Hillary Clinton had won...
  • yellen_duct_tape_7-16-2014_largeGold Bull Market Remains Intact – Long Term Fundamentals Outweigh Short Term Market Gyrations
      A Strong First Half of the Year, Followed by Another Retreat In early 2016 gold had a big bull run. The precious metal rose close to 25% this year, pushed higher in a summer rally that peaked on July 10th. Gold experienced a bumpy ride over the remainder of the summer though, as investors became increasingly concerned about a potential rate hike by the Federal Reserve. Uncertainty returned to gold market and has intensified further since then.   Initially, gold rallied sharply...
  • david_stockman_0Too Early for “Inflation Bets”?
      The Trump Trade After 35 years of waiting... so many false signals... so often deceived... so often disappointed... bond bears gathered on rooftops as though awaiting the Second Coming. Many times, investors have said to themselves, “This is it! This is the end of the Great Bull Market in Bonds!”   The long bond's long cycle – red rectangles indicate when the post 1980 bull market was held to be “over” or “over for sure” or “100% over”, etc.  We have...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

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