Monday, April 19, 2010

While the latest woes around Godman Sachs' alleged malversations against its own clients overshadow the financial world like the Icelandic ash cloud above Europe, latest ECB data are a strong indication that the Eurozone's troubled banks will grab the headlines again.
The April monthly bulletin of the ECB contains a graph that shows a huge Klumpenrisiko (bulk risk) in the Eurozone banking sector: Only 3 large ailing banks have been on the receiving end of almost half of all government money infusions between 2008 and 2010.

GRAPH: Just 3 large banks have not only received 46% of all Eurozone capital injections but also 36% of all capital guarantees and 52% of asset protection funds. Source: ECB
3 Largest Banks Account for Up to 9% of Eurozone Banking Assets
In absolute figures this translates into €32.5 billion in capital injections, €150.9 billion in liability guarantees and €21 billion in asset protection funds.

A comparison with other Western finance regions shows that Eurozone banks have absorbed the biggest liquidity infusions in comparison with their British and US counterparts.

GRAPH: Eurozone members have still a comfortable cushion of non-used liability guarantees after sucking up 54% of the volume of indicated capital injections. However, absolute figures show that the USA has so far taken the most money into hand for bailouts with total outlays of €627.7 billion. Source: ECB
The ECB comments these sets of data with these words:
The total commitment is the sum of the commitments under national schemes, across the three categories (or the actual amount spent in the absence of explicit commitments), plus the actual amounts spent outside national schemes. 
Regarding the implementation of the measures, some conclusions can be drawn. Although there are differences across the different measures and regions, the amounts involved are significant in the euro area, the United Kingdom and the United States. It should also be noted that there are also significant differences across euro area countries (not shown in the table). Chart 1 shows the percentages of the overall amounts committed under national schemes that have actually been extended. The take-up rate is generally low across all measures, but there are substantial variations: the use of recapitalisation measures has been relatively widespread, while the issuance of bank bonds with government guarantees has been considerably lower. It should be noted that the committed volume and use of liability guarantees, in absolute terms, are far higher than the committed volume and use of capital injections. 
Furthermore, the bulk of the financial support has been targeted at a relatively small number of institutions (see Chart 2). Indeed, in the euro area about half of the extended support has been absorbed by the three largest recipient institutions.12 In the case of each individual support measure, the three largest recipients account for 6-9% of total euro area banking assets.
Greece is a problem not yet solved while speculators begin to focus on Portugal, which rejected assertions its state of debts are as crippling as those of Greece, pointing to a far lower public debt: GDP ratio of 86% vs. 124% for Greece based on data from the EU Commission.
But Portugal's Achilles heel may look rather more than that of Spain: In both countries consumer debts have risen to unsustainable levels, with Portugal taking a lead with 239% consumber debt:GDP ratio. Total Portuguese debt levels have now climbed above 300% or equal to the US total debt level in the Great Depression, when this ratio topped out at 300% in 1933.


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