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!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add 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:

  • India: The Lunatics Have Taken Over the Asylum
      Goods and Services Tax, and Gold (Part XV) Below is a scene from anti-GST protests by traders in the Indian city of Surat. On 1st  July 2017, India changed the way it imposes indirect taxes. As a result, there has been massive chaos around the country. Many businesses are closed for they don’t know what taxes apply to them, or how to do the paperwork. Factories are shut, and businesses are protesting.   A massive anti-GST protest in Surat  [PT]   Increases...
  • Adventures in Quantitative Tightening
      Flowing Toward the Great Depression All remaining doubts concerning the place the U.S. economy and its tangled web of international credits and debts is headed were clarified this week. On Monday, Mark Yusko, CIO of Morgan Creek Capital Management, told CNBC that:   “…we’re flowing toward the path of 1928-29 when Hoover was president. Now Trump is president. Both were presidents with no experience who come in with a Congress that is all Republican, lots of big promises,...
  • The Student Loan Bubble and Economic Collapse
      The Looming Last Gasp of Indoctrination? The inevitable collapse of the student loan “market” and with it the take-down of many higher educational institutions will be one of the happiest and much needed events to look forward to in the coming months/years.  Whether the student loan bubble bursts on its own or implodes due to a general economic collapse, does not matter as long as higher education is dealt a death blow and can no longer be a conduit of socialist and egalitarian...
  • How Dumb Is the Fed?
      Bent and Distorted POITOU, FRANCE – This morning, we are wondering: How dumb is the Fed? The question was prompted by this comment by former Fed insider Chris Whalen at The Institutional Risk Analyst blog.   They're not the best map readers, that much is known for certain. [PT]   [O]ur message to the folks in Jackson Hole this week [at the annual central banker meeting there] is that the end of the Fed’s reckless experiment in social engineering via QE and...
  • Tales from the FOMC Underground
      A Great Big Dud Many of today’s economic troubles are due to a fantastic guess.  That the wealth effect of inflated asset prices would stimulate demand in the economy. The premise, as we understand it, was that as stock portfolios bubbled up investors would feel better about their lot in life.  Some of them would feel so doggone good they’d go out and buy 72-inch flat screen televisions and brand-new electric cars with computerized dashboards on credit.   The Wilshire...
  • Which Is Worse? America or France?
      French Fraud POITOU, FRANCE – “Which is worse? America or France?” The question must be put in context. We were invited to dinner with local farmers last night. Jean-Yves and Arlette live in a modest house in the nearby town – an efficient and cozy place built about 25 years ago. They’ve added a solarium to the back, where we had dinner.   FAF – French-American Friendship. These days it's a “which is worse” competition... [PT]   Arlette operates a...
  • The Myth of India's Information Technology Industry
      A Shift in Perception – Indians in Silicon Valley When I was studying in the UK in early 90s, I was often asked about cows, elephants and snake-charmers on the roads in India.  A shift in public perception— not in the associated reality — was however starting to happen. India would soon become known for its vibrant IT industry.   Friends and family are helping students taking university exams with cheating. 2.5 million candidates, many of them with PhDs or post-graduates,...
  • No “Trump Bump” for the Economy
      Crackpot Schemes POITOU, FRANCE – “Nothing really changes.” Sitting next to us at breakfast, a companion was reading an article written by the No. 2 man in France, Édouard Philippe, in Le Monde. The headline promised to tell us how the country was going to “deblock” itself.  But upon inspection, the proposals were the same old claptrap about favoring “green” energy... changing the tax code to reward one group and punish another...  and spending more money on various...
  • Putting the Latest Silver Crash Under a Lens
      An Unenthusiastic Market On Thursday, July 6, in the late afternoon (as reckoned in Arizona), the price of silver crashed. The move was very brief, but very intense. The price hit a low under $14.40 before recovering to around $15.80 which is about 20 cents lower than where it started.   1 kilogram cast silver bars from an Austrian refinery. These are available in 250 g, 500 g and 1 kg sizes and look really neat. We use the 250 g ones as paperweights, so this is an...
  • Gold and Silver Capitulation – Precious Metals Supply & Demand Report
      Last Week in Precious Metals: Peak Hype, Stocks vs. Flows and Capitulation The big news this week was the flash crash in silver late on 6 July.  We will shortly publish a separate forensic analysis of this, as there is a lot to see and say.   Silver - 1,000 troy ounce good delivery bars, approved by the COMEX. Whatever you do, do not let one of these things land your feet. For readers used to the metric system: these bars weigh approximately between 28 to 33 kilograms...
  • The Dangerous Season Begins Now
      Old Truism Readers are surely aware of the saying “sell in May and go away”. It is one of the best-known and oldest stock market truisms. And the saying is justified. In my article “Sell in May and Go Away – in 9 out of 11 Countries it Makes Sense to Do So” in the May 01 2017 issue of Seasonal Insights I examined the so-called Halloween effect in great detail. The result: in just two out of eleven international stock markets does it make sense to invest during the summer...
  • Stockholm Syndrome – Precious Metals Supply and Demand
      Hostages of Irredeemable Scrip Stockholm Syndrome is defined as “…a condition that causes hostages to develop a psychological alliance with their captors as a survival strategy during captivity.” While observers would expect kidnapping victims to fear and loathe the gang who imprison and threaten them, the reality is that some don’t.   Images from the Kreditbanken robbery at Norrmalmstorg in central Stockholm in 1973. The two bank robbers took four hostages, who...

Support Acting Man

j9TJzzN

Austrian Theory and Investment

Own physical gold and silver outside a bank

Archive

350x200

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

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]

 

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com

savant