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.
Platt said he’s disappointed in the measures that came out of last week’s meeting of European leaders, saying they were too focused on budget cuts. Austerity will ultimately lead to slower growth in Europe, making the region’s debt woes even worse, he said. A solution will come when the European Central Bank pumps significant amounts of money into economies, something it lacks a mandate to do, Platt said.
The situation in Europe is “completely unstable” because economies are shrinking at the same time as governments are paying higher yields to service debt, Platt said. The region is heading into a recession that “can turn all the countries of Europe, given enough time, into Greece,” he said.
European Central Bank President Mario Draghi said today that the euro area may not be able to escape a recession triggered by governments’ austerity measures. BlackRock Inc., the world’s biggest asset manager, said European nations including France and Germany are headed for a recession as the crisis prompts companies to cut spending and stop hiring.
“We now believe that we’re in for a full-fledged recession, including one in France and Germany, that could cut GDP by 1 percent to 2 percent,” according to a note published today by New York-based BlackRock’s investment institute. “Short-term austerity measures could worsen the recession, defeating their very purpose of closing budget gaps.”
The Dec. 9 European Union summit was the 15th in 23 months as leaders attempt to contain a surge in bond yields that threatens the survival of the common currency. Leaders agreed on a blueprint for a closer fiscal union, added 200 billion euros to their war chest and sped the start of a 500 billion-euro rescue fund to next year.
“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.” He declined to comment beyond the letter when contacted by Bloomberg News today.
Latvians pulled about $54 million from local Swedbank AB 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. 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.”
S&P placed the ratings of 15 euro nations on review for possible downgrade on Dec. 5, including the region’s six AAA rated countries. Moody’s said Dec. 12 it will review the ratings of all EU countries in the first quarter of 2012 because the summit didn’t produce “decisive policy measures.”
BlueCrest is pouring money into U.S. Treasuries and short-term German debt because of concerns about market volatility and counterparty risk, Platt said. BlueCrest Capital International, the fund he personally manages in Geneva, has risen about 5.6 percent this year through November.
Platt’s BlueCrest International fund hasn’t had a down year since he started the company in 2000 after leaving a proprietary trading desk at New York-based JPMorgan Chase & Co. The fund, which has produced an average annual return of about 13.8 percent, mainly bets on movements for currencies and interest rates. The firm’s BlueTrend Fund, which uses computers to try to spot profitable trades in futures contracts tied to currencies and commodities, is down about 2.7 percent this year.
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.”