The Banking and Strategy Initiative

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Who's buying European assets | Advantage Dealbook ( European banks Deleveraging)

As of 2011 June, US corporations reported a cash chest of over $700 bln as they tried to stay away from expensive deals and buy back programs and hiring was subdued in the Economic imbroglio that defined th e year for the US. While a few big deals were reported, the deal markets were wondering how to make use o fthe large cash pile with US corporate just 6 months ago. No longer.

Even as China stopped buying US Treasuries in October 2011, its budget for EFSF debt was only 2-3% of the $150 bln in surplus funds it was to invest otherwise outside US now. Its CIC portfolio already includes more than a60% share of international investments in the USA. Seemingly thus, China and some aggressive US banks such as Wells Fargo were using the European Banks deleveraging sale to buy over $ 3 tln in assets being put up by these banks at substantial discounts as banks repsonded to the dead end in sovereign relations and a June 2012 deadline to recapitalise to 9%.

40% of the $300 bln gap is being covered by risk optimisation, redefining silos of Risk weighted assets to minimise risk capital requirements in each case while the other needed a sale of more than $1.6 tln from the asset books. As these are not bad loans or even equity investments in thriving European companies, they were immediately attractive to US Banks, Companies and China’s surplus sovereign funds

China was constrained however by investment limits in challenged sovereigns while a new comer to the continent like Wells fargo would be focussing first on international assets of these banks in the US  but not just the bank arms in investments and credit cards that have been on sale to competing franchises in Mainland USA. These assets are profit making corporations’ debt and equity hwhich give an ownership interest ito buyers from US  China and elsewhere into larger businesses on the Continent and across the Channel in UK Chin ahas stayed away from European bonds as their risks make them unpopular, while Brazil has rushed in to buy IMF tranches to support Europe as a diversification investment.

China MOFCOM Chen Deming found time from looming WTO actions to encourage Chinese investment early this month

“Next year, we will send a delegation for promoting trade and investment to the European countries,” Chen Deming told a gathering of Chinese firms with overseas investments on Monday.

“Some European countries are facing a debt crisis and hope to convert their assets to cash and would like foreign capital to acquire their enterprises. We will be closely watching and pushing forward the progress.”(CNBC)

A key Wells Fargo analyst from Baird had this to say last week

“Management is optimistic about the potential for additional asset purchases or business opportunities as European banks deleverage further,” David George, a Baird analyst, wrote in a note to clients today after meeting with David Hoyt, head of the San Francisco-based lender’s wholesale-banking division.(B’berg)

China spends $100 bln annually and this year will like spend dioible that amount in Europe and also in US infrastructure projects if allowed. It may also have competition from Cash rich US corps as the Fed tries to recover the investment rate in the US economy.

Wells Fargo as mentioned above stuck to buying bank assets in its field

Last month, Wells Fargo purchased $3.3 billion in real estate loans, loans backed by commercial properties in the United States, which had been previously owned by the former Anglo Irish Bank. Wells has also bought $2.4 billion in loans and other assets from the private Bank of Ireland, which is trying to raise 10 billion euros ($13 billion) after a bailout by the European Union and the International Monetary Fund.(ECONOMYWATCH)

Yesterday’s Morgan Stanley report on the topic reported a $3 tln gap to be filled by sales from European bans as it looks for custonmers along with other US banks to mop up the largesse from across the pond, that will go a long way in steadying ships on both continents

 

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