Chillin' out till it needs to be funded
The European Banks started proving rosy $2-3 bln profits since after GS results and we waited to push the analysis out because all those profits after paying super tax and more seemed to be misplaced from where we were looking. Starting with the back nine, HSBC proved a lot of US sub prime folio still hurt it as it paid a $440 mln charge in the quarter. Deutsche Bank of course had clean Corporate Profits and higher business , along with BNP bucking the trend of the dying Fixed Income Controlling Business. that seemingly is a lot of 90-day paper and maybe some Inter Bank market that we should be worried about as Basel 3 draws closer. Likely alongwith Deutsche, BNP will also be in line for a $60 bln if not $90 bl in capital raising to be completed before Basel 3 kicks in. Barclays of course is still paying for mortgages on its side of the pond and still along with ING selling $10 – $15 bln in assets to recover its capital damage. We consider a talk of profits too preemptive at this stage.
While others like Credit Suisse and Banco Santander do have poisonous govt lending in their portfolio, these were the few banks which did not have much sovereign / peripheral exposure. In fact SocGen and BNP have also started selling off their UST portfolio to get a better capital portfolio for a new reserve currency, or so we think. Thus I believe in all the above cases in Europe the banks need to not talk about their bottom line and markets as the profile underneath is like a sand castle flowing away in a tide of beer. till we get a more meaningful analysis in, I look to more inputs to complete this mosaic. The proud Cost Income ratios in the Continent also seem to be in question and Emerging Markets business more significant in the case of HSBC and maybe Deutsche Bank.
All of these banks would also be paying significant penalties for mis-selling insurance protection on their credit and carrying fresh Tier I capital untouched by new business.
All in all we are just not talking the same dollar hen comparing to global peers from the USA