While countries like Greece and Spain often face criticism for a lack of prudence that got them into trouble and caused the eurozone crisis, French and German banks were the enablers. During the boom years before 2008 they made huge loans to countries in Southern Europe, and today many banks remain vulnerable to the problems of those countries.
German Authorities Are Said to Investigate Deutsche Bank - NYTimes.com - 0 views
4More
Many eurozone banks like Deutsche Bank, BNP Paribas still in a weakened state - Page 2 ... - 0 views
-
German banks are less exposed to Greece but are owed 134 billion euros by Italian borrowers and 146 billion euros by Spanish customers.
-
Private and public borrowers in Spain still owed 115 billion euros to French banks at the end of 2011, according to the Bank for International Settlements. Italian borrowers owed 332 billion euros to French banks, and Greek borrowers owed an additional 44 billion euros.
- ...1 more annotation...
-
At the end of this week, WestLB, once Germany's third-largest landesbank, will provide a rare example of an ailing bank that is being broken up. Under pressure from EU competition authorities, the bank's toxic assets have been moved into a so-called bad bank, another part of the business has been sold and the remainder will continue to operate under the brand name Portigon.
9More
shared by Gene Ellis on 16 Jun 12
- No Cached
Banks' Fire Drill for Greece Election - NYTimes.com - 0 views
dealbook.nytimes.com/...fire-drill-for-greece-election
banks fire drill greece election nytimes nytimes com com
![](/images/link.gif)
-
In New York and London, banks have set up dedicated crisis teams, and rehearsed elaborate responses.
-
Citigroup has $84 billion in loans, bonds and other types of exposure to troubled European countries, plus France. The bank’s filings indicate that all but $8 billion of that exposure is offset with collateral it has collected and hedges on the portfolio.
-
Some banks are testing their systems to deal with the possibility of new currencies and preparing guidance for clients on how to operate in such an environment.
- ...6 more annotations...
-
Banks like Goldman Sachs and Morgan Stanley are also looking into the severe legal challenges that would arise if a country exited the euro. Contracts that govern loans, bonds and derivatives in Europe rarely take into account such a situation.
-
Consider an Italian corporation that owed a foreign bank 5 million euros, with a loan agreement struck under Italian law. If Italy left the euro, the bank might have less chance of getting euros back after the exit. In that case, the financial firm might be exposed to a new, less valuable currency.
-
Recognizing that threat, some banks are trying to move contracts into new jurisdictions like the United States or Britain. By transferring such loan agreements to English law, the banks may increase the chances of getting repaid in euros after an exit, according to legal experts.
-
The banks are also trying to protect their balance sheets if they do get stuck with large amounts of assets denominated in a new, weaker currency.
-
By doing so, they can better match their assets (the loans) within a specific country with their liabilities (the deposits). Then if a country left the euro zone, the value of the loan might fall in euros, but the banks wouldn’t owe as much to depositors in euros.
-
Mr. Lim notes, however, that some large banks, including Deutsche Bank, still have a lot more loans than deposits in countries like Italy and Spain.
9More
Cyprus adds to Europe's confusion - FT.com - 0 views
-
First, the eurozone does indeed have the capacity to do the right thing in the end, though not before first exhausting all the alternatives.
- ...6 more annotations...
-
A consensus on the principle that creditors, not taxpayers, should pay if a bank becomes insolvent does not yet exist across the eurozone. Does anybody imagine the German government would not rescue Deutsche Bank if it were in trouble? Of course it would.
-
Yet, as Guntram Wolff of Bruegel notes, a currency union with internal exchange controls is a contradiction in terms. Only the willingness of the European Central Bank to finance Cypriot banks without limit could end these controls in the near future. Will it be willing to act soon?
-
The outcome in Cyprus underlines the fact that the value of a euro of bank liabilities depends on the solvency of the bank itself and the solvency of the government standing behind the bank. If both bank and state are insolvent, lenders are likely not only to lose a big proportion of their money outright, but to find that the rest is frozen behind controls,
-
The ideal conclusion from the Cypriot imbroglio would be that all eurozone banks should have more capital.
-
A final lesson of this crisis is that what I have called the “bad marriage” that binds the eurozone members together has become worse.
-
Thus the eurozone limps on through crisis after crisis. Can – or will – this continue indefinitely? I do not know.
8More
European Banks Unprepared for Pandora's Box of Greek Exit (Bloomberg) - 0 views
-
Lenders in Germany, France and the U.K. had $1.19 trillion of claims on those four nations at the end of 2011, Bank for International Settlements data show.
-
Lenders in Germany and France saw an increase in deposits of 217.4 billion euros, or 6.3 percent, in the same period.
-
To prevent contagion, countries in the euro area would have to form a full-fledged political and fiscal union immediately and implement uniform guarantees on bank deposits throughout the region, Thomas Wacker and Juerg de Spindler, economists at Zurich-based UBS, said in a separate note. They said such a response can be ruled out.
- ...5 more annotations...
-
Bank of France Governor Christian Noyer told journalists in Paris last week that “whatever happens in Greece” won’t place any French financial institution in difficulty.
-
What’s changed is that banks in the so-called core EU countries of Germany, France and the U.K. used funds from the ECB in December and February to insulate their southern European units against losses should one or more country exit the euro. “If you’re a U.K. lender and you’ve lent 10 billion euros to your Spanish subsidiary and Spain exits, you’re suddenly only going to get paid back in 50 percent devalued pesetas and you’re on the hook for 5 billion euros,” said Philippe Bodereau, London-based head of European credit research at Pacific Investment Management Co., the world’s largest bond investor.
-
One way multinational banking groups are mitigating that risk is by replacing their own funding lines to subsidiaries in the region with ECB loans. Deutsche Bank, Europe’s biggest bank by assets, tapped “a small amount” of ECB cash to help fund corporate and retail business in continental Europe, where it has sizeable operations in Italy and Spain. BNP Paribas, Europe’s third-biggest bank, used the programs to help fund its Italian unit as it reduces intergroup backing.
-
European banks also have cut their sovereign-debt holdings and exposures to Ireland, Italy, Spain and Portugal.
-
ermany, France and the U.K. reduced exposure to Greece by more than half in the two years through the end of 2011 to $68.2 billion, BIS data show.
21More
shared by Gene Ellis on 09 Jul 12
- No Cached
PrudentBear - 0 views
prudentbear.com/...featuredcommentaryview
GEP com nytimes nytimes com global europe GDP crisis syndicate euro
![](/images/link.gif)
-
German exporters were major beneficiaries of this growth. German banks and financial institutions helped finance the growth.
-
Exports have provided the majority of Germany’s growth in recent years. Germany is heavily reliant on a narrowly based industrial sector, focused on investment goods—automobiles, industrial machinery, chemicals, electronics and medical devices. These sectors make up a quarter of its GDP and the bulk of exports.
-
Germany’s service sector is weak with lower productivity than comparable countries. While it argues that Greece should deregulate professions, many professions in Germany remain highly regulated. Trades and professions are regulated by complex technical rules and standards rooted in the medieval guild systems. Foreign entrants frequently find these rules difficult and expensive to navigate.
- ...18 more annotations...
-
Despite the international standing of Deutsche Bank, Germany’s banking system is fragile. Several German banks required government support during the financial crisis. Highly fragmented (in part due to heavy government involvement) and with low profitability, German banks, especially the German Länder (state) owned Landsbanks, face problems. They have large exposures to European sovereign debt, real estate and structured securities.
-
Prior to 2005, the Landesbanken were able to borrow cheaply, relying on the guarantee of the state governments. The EU ruled these guarantees amounted to subsidies. Before the abolition of the guarantees, the Landesbanks issued large amounts of state-guaranteed loans which mature by December 2015.
-
While it insists on other countries reducing public debt, German debt levels are high—around 81% of GDP. The Bundesbank, Germany’s central bank, has stated that public debt levels will remain above 60% (the level stipulated by European treaties) for many years.
-
Germany’s greatest vulnerability is its financial exposures from the current crisis. German exposure to Europe, especially the troubled peripheral economies, is large.
-
German banks had exposures of around US$500 billion to the debt issues of peripheral nations. While the levels have been reduced, it remains substantial, especially when direct exposures to banks in these countries and indirect exposures via the global financial system are considered. The reduction in risk held by private banks has been offset by the increase in exposure of the German state, which assumed some of this exposure.
-
For example, the exposure of the ECB to Greece, Portugal, Ireland, Spain and Italy is euro 918 billion as of April 2012. This exposure is also rising rapidly, especially driven by capital flight out of these countries.
-
Germany is now caught in a trap. Irrespective of the resolution of the debt crisis, Germany will suffer significant losses on its exposure – it will be the biggest loser.
-
Once the artificial boom ends, voters will discover they were betrayed by Germany’s pro-European political elite. There will be an electoral revolt and, as in the rest of Europe, a strong challenge from radical political forces with unpredictable consequences.
-
In late May 2012, French President Francois Hollande provided a curious argument in support of eurozone bonds: “Is it acceptable that some sovereigns can borrow at 6% and others at zero in the same monetary union?”
-
In the peripheral economies, continued withdrawal of deposits from national banks (a rational choice given currency and confiscation risk) may necessitate either a Europe wide deposit guarantee system or further funding of banks.
-
A credible deposit insurance scheme would have to cover household deposits (say up to euro 100,000), which is around 72% of all deposits, in the peripheral countries. This would entail an insurance scheme for around euro 1.3 trillion of deposits.
-
Given that the Spanish Economy Ministry reports that euro 184 billion in loans to developers are “problematic,” the additional recapitalization needs of Spain’s banks may be as high as euro 200-300 billion in additional funds (20-30% of GDP)
-
A Greek default would result in losses to Germany of up to around euro 90 billion. Germany’s potential losses increase rapidly as more countries default or leave the eurozone.
-
Austerity or default will force many European economies into recession for a prolonged period. German exports will be affected given Europe is around 60% of its market, including around 40% within the eurozone. In case of a break-up of the euro, estimates of German growth range from -1% to below -10%. It is worth remembering that the German economy fell in size by around 5% in 2008, the worst result since the Second World War, mainly on the back of declining exports.
-
For example, Greece owes about euro 400 billion to private bondholders but increasingly to public bodies, such as the IMF and ECB, mainly due to the bailouts. If Greece walks away as some political parties have threatened, then the fallout for the lenders, such as Germany, are potentially calamitous.
-
But the largest single direct German exposure is the Bundesbank’s over euro 700 billion current exposure under the TARGET2 (Trans-European Automated Real-time Gross Settlement Express Transfer System) to other central banks in the Eurozone.
1More
Eurozone fragmenting too rapidly - The China Post - 0 views
-
Any event that makes a euro exit by Greece — the most heavily indebted member state, which is off track on its second bailout program and in the fifth year of a recession — seems bound to accelerate those flows, despite repeated statements by EU leaders that Greece is a unique case. “If it does occur, a crisis will propagate itself through the TARGET payments system of the European System of Central Banks,” U.S. economist Peter Garber, now a global strategist with Deutsche Bank, wrote in a prophetic 1999 research paper. Either member governments would always be willing to let their national central banks give unlimited credit to each other, in which case a collapse would be impossible, or they might be unwilling to provide boundless credit, “and this will set the parameters for the dynamics of collapse,” Garber warned.
11More
Europe's banking union: Till default do us part | The Economist - 0 views
-
Almost a year ago, as the euro crisis raged, Europe’s leaders boldly pledged a union to break the dangerous link between indebted governments and ailing banking systems, where the troubles of one threatened to pull down the other.
- ...8 more annotations...
-
The third leg is a credible euro-wide guarantee on deposits to reassure savers that a euro in an Italian or Spanish bank is just as safe as one in a German or Dutch bank.
-
He dryly notes that Germany couldn’t even force its own savings banks to join its national deposit-insurance scheme.
-
Putting the European Central Bank (ECB) in charge of the region’s biggest banks should end the cosy relationship between banks and regulators that allowed Irish and Spanish banks to keep lending during property bubbles and the likes of Deutsche Bank to run with so little capital. If the ECB proves itself an effective supervisor
-
without ready access to a pot of money to fill these holes, the ECB could be reluctant to force banks to come clean. “It is madness to expose capital shortfalls if you don’t know where new capital is going to come from,” says one bank supervisor.
-
“If you wanted to challenge a decision, where would you go to court?” asks the head of a European bank regulator.
3More
Is Germany Responsible for the Euro Crisis? - Businessweek - 0 views
-
This narrative ignores one critical fact: Every irresponsible borrower is enabled by an irresponsible lender.
-
“Following the introduction of the euro,” he said, “a large amount of capital flowed into the countries which are now at the center of the crisis, such as Greece, Ireland, Portugal, Spain, and Cyprus.” What he didn’t say was how much of that capital flowed from Germany. In the second quarter of 2010, German banks had more assets in Greece than banks from any other country except France. They had more assets in Ireland than banks from any other country except the U.K. And they had more assets in Spain than banks from any other country, period.
-
Before the euro, when Germans saved, their current account balance rose, and with it, the value of the deutsche mark. After 2002 you could save in euros in Dortmund, and without currency risk your bank would invest in euros abroad
6More
Those Depressing Germans - NYTimes.com - 0 views
-
Last year Germany, not China, ran the world’s biggest current account surplus. And measured as a share of G.D.P., Germany’s surplus was more than twice as large as China’s.
-
Now, it’s true that Germany has been running big surpluses for almost a decade. At first, however, these surpluses were matched by large deficits in southern Europe, financed by large inflows of German capital. Europe as a whole continued to have roughly balanced trade.
-
Instead, however, Germany failed to make any adjustment at all; deficits in Spain, Greece and elsewhere shrank, but Germany’s surplus didn’t.
- ...3 more annotations...
-
It shares a currency with its neighbors, greatly benefiting German exporters, who get to price their goods in a weak euro instead of what would surely have been a soaring Deutsche mark. Yet Germany has failed to deliver on its side of the bargain: To avoid a European depression, it needed to spend more as its neighbors were forced to spend less, and it hasn’t done that.
-
They consider their country a shining role model, to be emulated by all, and the awkward fact that we can’t all run gigantic trade surpluses simply doesn’t register.