Saturday, July 5, 2008

European banks need 60-90 billion euros

Goldman Sachs lowers estimates on 40 European banks

The US investment bank Goldman Sachs has lowered its 2008-2010 forecasts for more than 40 European banks, warning Friday that some of them may have to raise between 60 and 90 billion euros to shore up finances in the face of a nearly year-long credit crisis. Pressure on levels of capital holdings, either self-imposed or applied by regulators or ratings agencies, could force European banks to raise 60 billion euros or withhold one year of dividends, according to the study. But it added: "If in addition to regulatory tightening, the sector returns to the early 1990s level of credit losses, we estimate that the capital shortfall could amount to 90 billion euros."

Posted by mken @ 04:27 PM (737 views)
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3 thoughts on “European banks need 60-90 billion euros

  • As it stands this is confusing. First para: some of the 40 banks under examination may need to raise between 40 and 90 bn euros. )GSax appears to be talking about some individual banks requiring that sum.)
    Last para: we estimate that the capital shortfall (aggregate for all the banks) could amount to 90 bn euros.
    I’d be surprised if it was as little as that. Any thoughts?

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  • The figure in the first para is too high, the figure in the last para is too low.

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  • $350bn-ish of CDO write-downs have so far been taken around the world.
    The last estimate of the total cost (IMF, back in March, I think) of CDO write-downs was over $1trillion.
    So we’re maybe 1/3rd the way through the write-downs, and that’s before the cancer that’s creeping to auto loans, credit cards, Alt-A’s and even some prime mortgages is taken account of.
    Rather more than €60-90 billion, I’d say.
    The total write-down may, in the end, thus endanger the aggregate balance sheet of the entire western banking industry. That’s the doomsday scenario, anyway.
    HOWEVER there’s no guarantee the balance is with the banks. It might be with insurance companies, pension funds or (hopefully) hedge funds.
    Seems unlikely to be all with the hedge funds, since their prime brokers do daily mark-to-market valuations.
    So looks like insurance is going to get more expensive, and the pensions crisis is going to get worse.
    That is, if the banking system doesn’t take the hit.

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