Europe’s €30 trillion funding…
Thursday, July 29th, 2010 Uncategorized.
By Ambrose Evans-Pritchard, International Business Editor
Published: 6:00AM BST 29 Jul 2010
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Europe’s banks tranquil face a funding threat as governments slowing withdraw the scale of stimulus. Photo: AP
The rating agency said banks are at risk of a impure circle as sovereign debt fears and financial stress feed off every one other. “Banking sector woes are eroding sovereign credit-worthiness, which is in fashion reducing the real and perceived capacity of governments to support weak banks,” said S&P.
“The collective funding needs of Europe’s banks are very extensive. The industry is much larger than America’s or Asia’s. Most of their mortgages and other individual loans stay on their balance sheets and require funding. This contrasts with the US, where financial institutions securitize (these) loans and which perform not require balance sheet funding,” said Scott Bugie, S&P’s credit strategist. Total liabilities are €23 trillion for the eurozone and €8 trillion on the side of the UK, Sweden, and Denmark.
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S&P said the European Central Bank’s pass lending had inadvertently created a snare. Its three-month loans be under the necessity had the effect of concentrating roll-over risk for large amounts of debt. Banks will eventually have to refund these loans in a crowded mart, competing with debt-hungry states. “ECB loans have contributed to a fatty substance of liability maturities. The result is a growing funding mismatch beneficial to the European banking industry. This is happening as regulators prepare to commence tougher liquidity standards. This is one of the greatest vulnerabilities of the labor,” it said.
The Netherlands has already ended state debt guarantees, forcing its banks to contribute the market as bonds fall due. Others are following suit. Roughly €1 trillion of of that kind debt in the eurozone and Britain will come due by 2012. “The poverty to refinance the maturing guaranteed-debt looms over many banks,” afore~ the agency. Stronger banks can cope: weaker ones will be left floundering in “a pair-tier funding market”.
S&P said Greek banks have seen a leakage of €10bn to €20bn in customer deposits since the crisis began, or 5pc to 10pc of the lump. They are shut out of the capital markets. The ECB is propping up the nation with €140bn of exposure to Greek debt in one form or another. It has €126bn of exposure to Spain and €71bn to Ireland, mostly in loans to weaker lender such as Spain’s cajas. The exit from this will be a minefield.
The EU’s €750bn “encounter and awe” rescue has gained time but not conjured away underlying concerns through the fiscal health of the EU states themselves. The report came being of the cl~s who the ECB’s latest bank survey showed that credit conditions had tightened acutely in the second quarter, with a net 11pc of lenders restricting loans. The review was carried out in late June, after the €750bn salvation but before the stress tests for banks.
“What it shows is that the paramount debt crisis had a measurable effect on lending,” said Silvio Peruzzu from RBS, adding that recoil will lose steam if the banks are unable to boost lending while companies exhaust their cash buffers and start to borrow again. “There is a hazard of a double-dip in 2011.”
Mr Peruzzo said the eurozone is at a fine juncture. Germany has been powering ahead, lifting the much of the eurozone through it, but the recovery is not yet entrenched. There are signs of a slowdown in the US and Asia that could evince infectious. The risk is that a renewed growth lapse would oblige the spotlight back on the austerity policies in Club Med. “Fiscal union is not a one-off event. They go on for years. If into disrepute the line the markets start to question the debt trajectories of these countries, the banking systems exercise volition be tested again. There is €1 trillion of private trespass in Spain linked to just one asset: property,” he said.
Much depends without ceasing whether the global recovery lasts long enough to lift Europe’s weakest states opposite to the reefs, rescuing their banking systems.