Short SEB and Swedbank via options.

Thinking todays UK bank bailout news was good for banks? Think again. Wrong path. US is choosing the right one by aiming to buy out toxic assets from the banks. Thereby making it possible for them to get access to private sector capital again.

UK version means still toxic banks AND a majority owner trying to run the banks in a Sovietunion spirit by "ordering" banks to lend. How silly is that? Very much so, in my book anyway. Leads to more capitaldistruction and misallocation, defeating the main objective and making things worse. Redo, please.

SEB and Swedbank link
Government ownership of banks is spreading like a bush fire in the western world. Anyone still dreaming that the Scandinavian banks will remain an exception for long? Not me anyway. Especially with their own subprime version across the Baltic sea. Russia desperately trying to keep their currency under control by basically letting it slip 1% against their basket every other day so far this year. NOT helping the Baltics.

CEE, Turkey and Southafrica heading lower as well. This is all increasing the pressure in the Baltic kryptonite deflation cooker further. Swedbank not providing any guidance for creditlosses going forward, hmmm,,, Probably not because earlier estimates were considered too big anyway. On the contrary, they were most likely embarrasingly low. Well, in the absence of guidance from Swedbank, I will make one for you.

My estimated credit losses for Swedbank of their capital lend in the Baltics (200 Bn SEK plus), once the lid blows, will be in the range of 15-25%,(sorry wide price) so 30-50 BN SEK over 1-2 years. Take it for what it is, a ballpark guesstimate. However, I do believe it is a better one than the previous Swedbank "guidance" anyway. SEB should fall into the same ballpark guesstimate btw.

How long before the lid blows? Dont expect it to hold for that much longer. I am talking months, perhaps less. Then any private equity recapitalisation plan will have a very low probability of succeeding. Government bailout will be the most likely solution.

Add the wonderful private equity mess ingredient and we have a bitter recapitalisation soup. If I was Chairman in any of these banks I would obviously give directions to recapitalise before the Baltics blew. Why have not SEB done this then? Perhaps they have already tried but found nothing there, and are now keeping their fingers crossed. Perhaps they are already in negotiations with their Government? What do I know? Im only guessing.

It does however seem quite apparent that this is a nonworkable situation and that time is running out for recapitalisation possibilities. The outcome is unfortunately heavily tilted towards shareholders having to suffer further from here. They could even be left with nothing. Once the stockmarket starts focusing on the probabilities and extent of coming creditlosses vs recapitalisation needs instead of "old world" valuation parameters, I do not rule out a Carnegie style stockprice movement (a swift and sudden very large gap lower) in these stocks as their very precarious survival situation becomes apparent. Time is NOT on their side as the situation becomes progressively more difficult.

As always, good luck












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