Thursday, December 3, 2009

15 European Banks Now Have Assets Larger than Their Domestic Economies, Versus 10 Pre-Crisis

It appears just as in the US, where "the big 4" financial oligarchs now dominate, have become even "too bigger to fail" post crisis and make a farce of "8000 competitors"....

1.Bank of America (BAC) $2.3 Trillion
2.JPMorgan (JPM) $2.0 Trillion
3.Citigroup (C) $1.8 Trillion  
4.Wells Fargo (WFC) $1.3 Trillion

There is no one else who is even close in commercial banking (Goldman does not count for this list).

....we have the same issue in Europe.  As we await the next surge in the stock market (which tells us all is, of course, right in the world), these are not issues to worry about today.... but file all these as the series of "no one could of imagined!" Black Swans hit us in the decade to come.  I truly am amazed at the power of financiers... it is like they are some super class of humans. Then again companies in no other industries have institutions (central banks) whose main job is to move heaven and earth, to make sure their prodigy always win.  Can you imagine a central bank that only served car companies or technology companies?  We smirk, but accept it for the banks...

Sowing the seeds for one of next decade's crisis, 15 European banks now are larger than their home economies - obviously the lesson's of Ireland have already been ignored [Sep 17, 2009: Ireland to Spend 28% of Gross Domestic Income to Suck up Banking Toxic Assets]  Anyhow, not to worry - the market is poised to break out... we can pick up the kicked can in 2014. 
  • European banks are emerging from the credit crisis bigger than before, posing more risk to their national economies.
  • BNP Paribas SA [France], Barclays Plc [UK] and Banco Santander SA [Spain] are among at least 353 European lenders that have increased in size since the beginning of 2007, according to data compiled by Bloomberg. Fifteen European banks now have assets larger than their home economies, compared with 10 lenders three years ago.
  • Paris-based BNP Paribas, the world’s biggest bank by assets, increased its balance sheet by 59 percent to 2.29 trillion euros ($3.5 trillion) since the beginning of 2007, an amount equal to 117 percent of France’s gross domestic product.
  • Assets at London-based Barclays jumped 55 percent to 1.55 trillion pounds ($2.6 trillion), or 108 percent of U.K. GDP.
  • Santander’s rose 30 percent to 1.08 trillion euros, about the size of Spain’s GDP.
  • In the U.K., the five largest banks -- HSBC Holdings Plc, Barclays, RBS, Lloyds and Standard Chartered Plc -- have 6.1 trillion pounds of assets, or about four times GDP. A decade ago, the top five banks had 1.2 trillion pounds in assets.
I am sure that will work out well in the end....

  • While the European Union has grabbed headlines for breaking up bailed-out banks, regulators haven’t reined in firms that shunned state aid and are too big to fail. European bank assets have grown 25 percent since the start of 2007, compared with a 20 percent increase at U.S. lenders.
  • The EU doesn’t have authority over banks that weren’t bailed out, many of which continued to expand as European economies contracted. Banks such as BNP Paribas and Santander have taken advantage of their rivals’ woes to make acquisitions.
  • We are sowing the seeds for the next crisis,” said David Lascelles, senior fellow at the London-based Centre for the Study of Financial Innovation, a research group. “What we have been doing in the last two years is making banks much bigger. It really goes against the currents of the time.”
  • The credit crisis shows that large institutions pose too great a risk to their home countries, especially in Europe’s relatively small economies, said Tom Kirchmaier, a fellow at the London School of Economics, who lectures on finance and corporate governance.
  • “Breaking up banks that are too big to fail has, in my view, a lot of merit,” Kirchmaier said. “If we were to have another systemic shock and one or more of these very large banks would fail, I have serious concerns whether some of the smaller countries would be in a position to absorb the losses for a second time.”
  • Banks expanded their balance sheets during the credit bubble, borrowing cheap money in the wholesale market to fund loans and investments.  Royal Bank of Scotland Group Plc’s assets ballooned 2,914 percent in the 10 years through 2008 as it made acquisitions, boosted trading and increased lending. (how did that work out again?) Edinburgh- based RBS spent $140 billion on takeovers during the period, culminating in the purchase of ABN Amro Holding NV in 2007 that triggered the world’s biggest bank bailout. (oh)
  • The increasing complexity of banks makes it difficult for regulators and governments to monitor risks, even at firms that appear transparent and stable, said Johannes Wassenberg, managing director of European banking at Moody’s Investors Services in London.
  • UBS was understood to have very good management, but that failed dramatically,” Wassenberg said. “The market is placing an enormous amount of faith in banks to regulate themselves, (worked like a charm the last time around) and it is hard to know whether they’re doing it properly. From that perspective, smaller banks are a safer bet.”
Nice words Mervyn, but no one seems to be doing a darn thing about it...
  • “Banks increased both the size and leverage of their balance sheets to levels that threatened the stability of the system as a whole,” Bank of England Governor Mervyn King said in an Oct. 20 speech in Edinburgh. “If our response to the crisis focuses only on the symptoms, rather than the underlying causes of the crisis, then we shall bequeath to future generations a serious risk of another crisis even worse than the one we have experienced.”

The rest of the piece is the normal garbage from bank executives defending their size and how it is necessary to operate... because as you clearly know, banks never used to be able to operate at smaller sizes.... like say a decade ago.
  • “The reform so far has been pathetic,” Lennon said. “In the U.K., you had ATMs hours away from collapse. You need a complete overhaul of the system, and at the moment I can’t see it coming.”
[Oct 21, 2009: Mervyn King Joins Alan Greenspan, Paul Volcker in Call to Break up Big Banks]
[Oct 15, 2009: Even Alan Greenspan Thinks the Banks Have Become too Large]

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