The Bankwatch

Tracking the consumer evolution of financial services

Posts Tagged ‘Europe

Eurozone banks face $283bn writedowns| Report


Europe and the ECB are slow with dissemination of analysis and information when compared to the IMF, US and UK.  But when they do, here is 226 pages of analysis that tells us Euro Banks will write off $283 Bn over 2009/ 2010.

More to come after I get a chance to digest, but meantime here it is for your reading pleasure.  They key is the general deterioration and reduction in forecasts since last in December 2008.

ECB Financial Stability Review pdf

The further significant deterioration of global macroeconomic conditions since the finalisation of the December 2008 Financial Stability Review as well as sizeable downward revisions to growth forecasts and expectations have added to the stresses on global and euro area financial systems. The contraction of economic activity and the diminished growth prospects have resulted in a further erosion of the market values of a broad range of assets.

Connected with this, there has been a signifi cant increase in the range of estimates of potential future write-downs and losses that banks will have to absorb before the credit cycle reaches a trough. Although there are great uncertainties surrounding such estimates of probable losses and of the  outlook for banking sector profi tability, the scale of estimates of potential write-downs has weighed on investors’ confidence in the resilience of already-weakened financial institutions. Refl ecting the challenges confronting the euro area banking sector, funding costs have remained elevated, the market price of insuring against bank credit risk has continued to be very high and the market value of many banks’ equity has remained significantly below book value.

Eurozone banks face $283bn writedowns | FT

Eurozone banks face additional losses of more than $283bn this year and next as continental Europe’s severe recession intensifies strains on its financial sector, the European Central Bank has warned.

The fates of the eurozone economy and its banks have become increasingly interlinked, the ECB reported on Monday in its latest “financial stability review” with banks losses expected to be focused on their loan exposures. Risks to the stability of the financial sector remained high, it said, while “uncertainty prevails” over the shock-absorbing capacity of the banking system.

Written by Colin Henderson

June 15, 2009 at 23:32

Posted in Europe

Tagged with , ,

The Aftermath of Financial Crises | study


A short and useful paper offerring some points that help to frame the next few years for strategic planning purposes.  This to be read of course in the context of politicians preaching ‘road to recovery’ which leaves the uninformed with the view that we will get over this blip and back to normal.

I prefer to think of this as a shift that will profoundly change things for the next few years, with some good and some not so good elements in that shift.  It may be good that the banking industry will be shaken up, and out of that some innovation and better services will appear.  The less good part is that more bank customers will have to work harder and longer for less money, and accumulation of wealth will return to a savings culture rather than an asset accumulation one.

All this provides a different prospect for financial services, and products will need to be restructured or invented to match those busier, poorer customers who nonetheless have financial goals such as debt reduction and wealth accumulation for retirement.

The paper outlines three core results of financial crises.  This is based on empirical evidence of 18 post war crises in the developed world, including “the big five” (Spain 1977, Norway 1987, Finland, 1991, Sweden, 1991, and Japan, 1992) along with some developing country crises (the 1997–1998
Asian crisis, Colombia 1998; and Argentina 2001.

No real surprises here;  Low asset values, high unemployment, and high government debt.  Click through for details (13 pages).

The Aftermath of Financial Crises pdf – Reinhart (Univ of Maryland), and Rogoff (Harvard)

First, asset market collapses are deep and prolonged. Real housing price  declines average 35 percent stretched out over six years, while equity price collapses average 55 percent over a downturn of about three and a half years.

Second, the aftermath of banking crises is associated with profound declines in output and employment. The unemployment rate rises an average of 7 percentage points over the down phase of the cycle, which lasts on average over four years. Output falls (from peak to trough) an average of over 9 percent, although the duration of the downturn, averaging roughly two years, is considerably shorter than for unemployment.

Third, the real value of government debt tends to explode, rising an average of 86 percent in the major post–World War II episodes.

Interestingly, the main cause of debt explosions is not the widely cited costs of bailing out and recapitalizing the banking system. Admittedly, bailout costs are difficult to measure, and there is considerable divergence among estimates from competing studies. But even upper-bound estimates pale next to actual measured rises in public debt. In fact, the big drivers of debt increases are the inevitable collapse in tax revenues that governments suffer in the wake of deep and prolonged output contractions, as well as often ambitious countercyclical fiscal policies aimed at mitigating the downturn.

Written by Colin Henderson

May 25, 2009 at 09:44

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