Hedge Fund Manager Kyle Bass Tells David Faber: "EU Bailout Will Cost France And Maybe Even Germany Their AAA Ratings"
UPDATE - Most of you are looking for today's (Sep. 14) interview of Kyle Bass with David Faber. You can find that here:
With Europe's crisis making all the financial headlines, it's worth another look at the bailout truth from Kyle Bass. Interview conducted Aug. 8, 2011.
The European Central Bank's bailout, estimated to be about 2 billion euros in Italian and Spanish debt, "will cost France and maybe even Germany their triple-A ratings," Kyle Bass, managing partner of Hayman Capital, told CNBC Monday.
"Supposedly this is the sixth save for the euro zone," Bass said. "When you understand the mechanisms of this European financial stability facility, today it has 440 billion euros in lending capacity. They have to raise 780 billion euros in debt to fund this," said Bass.
"There are several countries [in Europe] that have sailed into the zone of insolvency," he added. The zone of insolvency is "just like at home when you can't pay your bills."
Bass went on to say the European banking system is "about three times as leveraged as the U.S. banking system, and they haven't recapitalized their system because they don't have a lender of last resort like the [Federal Reserve] in the United States."
U.S. banks are in better shape than European banks, he added. Europe doesn't "have the money to recap their banks because they don't have a mechanism to print the money like we do." But Bass acknowledge that "it doesn't take a genius to see that in the U.S., when you bring in $2.3 trillion of revenue and you spend $3.7 trillion, that maybe we're not a triple-A."
PARIS/LONDON - France and Britain are most vulnerable within Europe to a rating review following the U.S. downgrade, with anemic growth and hefty borrowing placing them among the shakiest of the world's triple-A rated lenders.
Both countries have stable rating outlooks, making a sudden downgrade unlikely and markets have been so impressed by Britain's debt-cutting strategy that they have pushed its bond yields to record lows.
But a surge in the cost of insuring French debt against default on Monday highlighted alarm sparked by Friday's U.S. rating cut as banks and brokerages warned that rating agencies could now have top-rated European lenders in their sights.
"France has slipped into borderline AA+/Aa1/AA+ (one notch below AAA) territory, so risks to its AAA are rising as stresses spread," financial services firm BBH said in a note to clients.
In another indication of mounting concern over France, spreads between French and German 10-year bond yields hit all-time highs last week and remained wide on Monday.
The most likely trigger for France to be put on negative watch would be a failure by the government to get parliamentary backing for a constitutional limit on future public deficits, with opposition left-wing lawmakers vowing to reject it.