Platt of BlueCrest 'JPMorgan Chase & Co. (JPM) Loss Could Increase'

Michael Platt of BlueCrest Capital Management spoke with Bloomberg Television’s Stephanie Ruhle and Erik Schatzker today and said that “Greece will never give back” money that has been lent to it by Europe.  He also said that a Greek exit from the euro would prompt more departures and that Spanish banks are probably “evergreening” their mortgage books.

On JPMorgan Chase & Co.(NYSE:JPM)’s $2 billion trading loss, Platt said, “I think it’s a trading loss. They deliberately put the positions on” and “they’re not out of those positions.”


On Europe’s crisis and whether the euro is a failed experiment:

“I think we need to look at the situation country by country. If you take the situation of Greece, in the opinion of the markets, Greece should have should never have been allowed into the euro in the first place. They have already defaulted on their debts. They nearly defaulted again on a whole currency bond last week. They are not in a position to pay their bills. They have a primary deficit still. They will continue to be excluded from the funding markets. I think at this point in time, as the market increasingly calls into credibility the Troika, they are continuing to put money into a situation which has clearly become hopeless. “


On why the Troika continues to put money in:


“Greece will never give it back. We’re got some pretty clear evidence that this is the case. They are not in a position to pay the money back. The situation in Greece has gone from mainstream politics to now communism being the likely dominant party at the next round. The communist party has promised chocolate cake with no calories to the population – they can stay in the euro but abandon the  program of austerity, which will not be the case. The market now is openly speculating that Greece will exit the euro. “

On when Greece will exit the euro:

“I think it revolves around what happens to the Greek banks. We have seeing a gradual movement of money out of Greek banks. The deposit base has reduced from about 240 billion euros to 140 billion euros. We saw the pace of that stepping up recently. The big worry would be a stampede out of Greek banks, which precipitates an earlier crisis while the country has no government. That could move that way. If we go to a world where there’s an election and Switzer gets a 30% share in the votes, and then forms a coalition, I think they will leave almost immediately. “

On the total financial impact of a Greek exit:


“I think the order of events would be Greece exits, shock wave across Europe, massive stress in banks, Spain turns into the battleground for the euro because of distresses in their own banking system, and then we either get a very swift and strong European solution or we get a hugely disorderly meltdown in Europe. “


On what a swift and orderly solution would look like:

“Let’s look at the problem. In Spain at the moment, the estimate of the amount of money required to take Spanish banks to a proper 10% tier 1 capital ratio is around 90 billion euros. There is no effective federal deposit insurance scheme in Spain. It used to be eight billion euros, now it’s at 300 million euros. It has forward losses of between 15 and 20 billion euros as a result of two caja deals. So the risk is that people focus on the Spanish banking sector and we witness strong outflows or runs out of Spanish banks.”

On whether Spanish banks are acknowledging their real estate positions:

“No, they are not. In a country with 24% unemployment, they have a 3% provision against their mortgage book…The mortgage book of Ireland has a 10% provision. What is going on in Spain is that 22% of Spanish mortgages have been reworked, half of them more than twice. In other words, there’s evidence that the banks have been evergreening loans.  In which case, 7% of it, you have to take another allowance of 7% to get it to Irish levels against 650 billion euros. That’s another 50 billion euros there. And the same is going on in the loans to small and medium enterprises.”

On who has enough money to backstop Europe from a disorderly meltdown:

“On the day that Greece leaves, in order to circumvent bank runs and market mayhem, there would need to be an enormous announcement from the EU, there are two things that could be effective. I think we can rule an enormous money printing operation by the ECB. But I think the announcement of a eurobond for Europe would be something that would buy an enormous amount of time. It would have to be massive. The problem is, issuing a eurobond, I do not see that a hasty and ill-conceived monetary union can be solved by a hasty and ill-conceived fiscal union. Governments would need to cede sovereignty over their domestic spending to a central European entity, and I just can’t see that happening.”

“ I think that there’s a misconception also in the markets that Germany can ultimately pay for everything. The truth is that the European area is an economy as big as the United States. And Germany is 78% smaller than the United States.”

On whether Germany would exit the euro if the country doesn’t have the money to support the rest of Europe:


“I think an elegant solution, and I know it’s not politically acceptable, will be for Germany to manage an exit for itself from the euro, control its currency versus the euro, and then the remaining euro region could then print money, buy bonds, and instantiate a Fed mandate for the ECB, which have a mandate to minimize the loss of the economy versus inflation and unemployment.”


On how he’s trading Europe right now:


“The problem is you can make a pretty sensible argument for almost any outcome in Europe. It could be a run on the banks very quickly. The Greeks could end up staying in for a little bit longer. They could vote to take themselves out. There could be a eurobond. The whole situation could be overtaken by events. We could have bank runs in Spain. We could have LTRO. We could have a concerted bond-buying action from the ECB. You can make a sensible argument for almost any outcome it’s in such a state of flux right now. I think that when you get into these sorts of situations, the first thing you want to do is you want to ensure that your money is in a place where you like the credit so that if there is a major banking problem you’re not going to lose money on credit…The reason why the treasury market’s doing so well. Treasuries, and the short end of Europe with German government bonds, for two years now yield being essentially zero.”

On France and Italy:

“I think Spain is the battleground. I think that [France and Italy] come after. I think it will all be resolved

in terms of where we end up

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