Bank Woes Deepening in Europe

http://www.nytimes.com/2009/07/01/business/global/01eurobanks.html?_r=1&hpw

Bank Woes Deepening in Europe


..ewwww...slimy bankers touching.
From left, the chairman of KBC Bank, Jan Huyghebaert; Prime Minister Herman Van Rompuy of Belgium; and the Belgian finance minister, Didier Reynders in May.

By LANDON THOMAS Jr.
Published: June 30, 2009


When the financial crisis struck the global economy last autumn, European governments moved swiftly to keep their biggest banks from falling into an abyss — never mind fears over nationalization.

But now, as big banks on this side of the Atlantic show signs of recovery (editorial comment - hahahahahah), a number of their counterparts overseas are sinking into a spiral of deepening losses that has prompted the European Union to consider a more aggressive approach to cleaning up its banking system.

Few people outside Belgium have ever heard of KBC Bank. But the travails of this lender, based in Brussels, highlight the broader challenges Europe is facing by not having more fully confronted the deteriorating health of its financial institutions.

Since October, KBC Bank has had to seek government relief three times. In all, it has received $41.5 billion in financing and guarantees to recover from disastrous mortgage bets that its financial engineers and traders made when times were good. For a bank with a balance sheet of just $425 billion, it is an astounding sum, exceeding the bailout of the Royal Bank of Scotland.

KBC is not alone. Souring loans and festering portfolios of securitized mortgages still plague a number of national banks.

Moody’s, the rating agency that recently issued a warning about the credit risk at 30 Spanish banks, is expected to lower its outlook for the Greek banking sector because of a sharp rise in nonperforming loans. In Ireland, the nationalized Anglo-Irish Bank still has a contaminated loan book that has emerged as threat to the country’s sovereign credit rating.

Nonperforming loans at Russian banks are even more worrisome, composing about 10 percent of the average bank’s books, a figure expected to balloon to 25 percent by the end of the year, forcing banks to raise as much as $80 billion in new capital. And in Sweden, the imploding Latvian economy has hobbled Swedbank, a huge provider of loans in the Baltics.

Scott Bugie, a European bank analyst at Standard & Poor’s, said it would be “a multiyear process” for these and other European banks to improve their capital positions and return to sound financial footing. He predicted that bad loan write-offs at Europe’s 50 largest banks would double next year.

The growing losses have raised calls for several new approaches, including a more aggressive approach by the European Union to diagnose banks’ creditworthiness. Now, regulators are debating whether to impose a regionwide stress test for banks, like the ones the United States required of its 19 largest banks.

But the European proposals have raised questions bordering on incredulity with some critics.

“This has the feel of a Magritte painting,” said Karel Lannoo, chief executive of the Center for European Policy Studies in Brussels, comparing the European Commission’s approach with the surrealism of the Belgian painter. “This is Belgium’s third-largest bank,” he said of KBC, “and it has had three successive rounds of aid, and they still can’t target the problem.”

KBC does not fit the profile of the classic overreaching bank. Its core business is serving Belgian corporations and individual investors. But as the credit boom approached its zenith, a small team of designers of exotic securitized investments pushed the envelope much further.

Whether it was manufacturing high-yielding collateralized debt obligations, leveraged lending to hedge funds or buying up life insurance policies and securitizing them, these bankers, based in London and New York, cultivated an anything-goes aura that was at odds with the bosses in Brussels.

So eager were KBC salesmen to sell high-reward products like collateralized debt obligations that they effectively promised risk-free returns, which lured a number of nonexpert investors.

A group of European companies that said it was told that the investments were marketed as risk-free is suing the bank.

Luc Philips, the chief financial and risk officer of KBC, said, “the decisions made by KBC FP were preapproved and vetted by the market and credit risk committees at the KBC Group headquarters in Brussels.” As for the lawsuits, Viviane Huybrecht, a spokeswoman, said the bank was examining them on a case-by-case basis.

The financial products team leaders, Darren Carter and Thomas Korossy, came to KBC in 1999 when the bank bought the equity derivatives business from D. E. Shaw, an American hedge fund.

The atmosphere was loose and geared toward risk-taking. Employees would come to meetings dressed in shorts and flip-flops, and if a business proposal did not meet the internal standard of a 22 percent return, it was discarded, former executives say.

Angry investors claim the unit was unsupervised. They point to the bank’s unusual practice of combining the roles of chief financial and chief risk officer, a policy that is in stark contrast to the most basic of corporate governance standards. In an interview, Mr. Carter said the bank’s collateralized debt obligations were of the highest quality, and were insured by the bond insurer MBIA.

When the mortgage market collapsed in late 2007, KBC, which had one of the highest ratios of collateralized debt obligations to bank capital of any institution in Europe, soon found itself close to insolvency. In October 2008 and again this January, KBC received 7 billion euros in public funds. When MBIA said in February that it could not pay off on its riskier positions, KBC was suddenly responsible for another 14.5 billion euros in collateralized debt obligations.

In May, André Bergen, the chief executive, turned to the government again, this time for a bailout of 22.5 billion euros.

The week before the latest infusion was announced, Mr. Bergen, 60, was rushed to the hospital for open-heart surgery. Late Tuesday, the bank said it was splitting the role of chief financial officer and chief risk officer, and that Mr. Bergen would step down permanently to recover, to be replaced by the interim chief Jan Vanhevel. Another crucial player, Guido Segers, resigned as the head of merchant banking, and traders and bankers have left as part of the inevitable downsizing. Still, the executives behind the collateralized debt obligation strategy remain in charge.

Ms. Huybrecht said the bank was trying to put the past behind it. But in two and a half years, if its investment is converted into KBC stock, the Belgian government could end up owning as much as 25 percent of the bank.

 

Sooner or later the ECB will panic over their rotting banking system. The day to short bunds will be when the ECB's biggest hawk Weber will get publicly crucified in the Berlin Reichstag by a mob of revolting proletarians.

 

at the moment i see panic only in the USA...
hmmmm

life didnt change here in europe oer the last 2 years...

hmmmmm......

 

For the unemployed you mean. Yes, for them not much changed in Europe over the last 2 years. Large export dependent corporations still going to hell left and right. Still the same fat socialist government checks coming in every month.

 

HAHAHAHAHAHAHAHAH !!!!!

I would suggest to revoke all his academic titles and send him back to primary school. Should be enough of humiliation...

 

Weber will still be screaming about price stability when Europe is smack dab in the middle of it's own "Lost Decade".

 

The ECB rate is 1%. That's hardly hawkish.

Monetary policy does not cause or cure recessions (unless you go to hyperinflation).

 

ECB is doing a fine job.

 

Belgium still has a 35% lower debt to GDP ratio today then during the early 90's.

This place is booming.