The Banking and Strategy Initiative

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European Banks Recapitalization: Downgrades, Deleveraging and Discouraging governments?

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While there are only a few saving graces from European Banking sky such as Deutsche Bank and HSBC, even those with such a global presence and strong balance sheets are getting mired into the current recapitalisation drive. The top three French banks including BNP Paribas are selling off $300 bln and more in financial assets to reduce their balance sheet exposure and get back into shape.

UBS has been downgraded last week and Spain and Portugal downgrades will also hit local Cajas and Banks holding their sovereign debt who have already been put on watch even as EFSF is extended to buy and sell Spanish, Italian and Portuguese debt.

Deutsche Bank needs $12 bln more of Core Capital to upgrade itself to solvent status as per the new Capital rules. That means asset sales and new investors but it might also mean unwelcome deleveraging and a virtual estoppel on new credit applications for bank’s potential customers till the bank negotiates a deal with its government and that of Europe for a fair treatment. With Greece itself still a hot potato, investors being asked to bear a 60% haircut with 2 year Greek bids at 35% and a 6% bid ask spread.

Deutsche Bank is still to get rid of its stake in Cosmopolitan,  a casino it promoted at the height of 2007 whose debt is nearly $ 4 bln. Another asset of choice fror sale wold be the remaining DWS asset management and even some portions of Sal Oppenheimer Wealth and retail presence in Germany after its integration of Postbank. In the worst case it could repeat the BofA across the pond with a larger German government stake in the bank and sale of its profitable Asia operations even as it restarts attempts to get bigger Corp book business in the US

Investors have however returned to buy subordinated bank paper ( check today’s Reuters Insider schedule) even as bank equities remain volatile and asset sales from even he AA rated banks remaining remain highly improbable at best.


A very nice arithmetic by bond analyst Vincento Albano for Reuters
Greece needs 64 pct debt cut to hit sustainability: Albano, Thomson Reuters: Reuters Insider



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This entry was posted on October 17, 2011 by in Amitonomics, Banking, Financial Markets, US and tagged , , , , , , , .


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