The names are distressingly familiar:
Remember them? They were so neck-deep in the Lehman/AIG/mortgage-backed-assets debacle that they required government bailouts. (Deutsche Bank may quibble. It got its cash from American International Group (AIG, news, msgs), so, technically, I suppose it didn't get government money. But because the AIG payout used cash from a government bailout of that company, I think it's a distinction without a difference.)
Click graphics to see interactive charts
Deutsche Bank
Barclays
Want to know how dangerous the Greek (soon to become the Greek-Spanish) crisis is? Look at these banks. (For more on Spain's progress toward crisis, see this blog post on my website.)
Want to understand why this is serious but not a replay of the chaos that followed on the collapse of Lehman Brothers? Look at these banks.
Want to know why investors are right to worry about contagion and the risk that other banks will catch what these banks have? Look at these banks.
OK, let's start with the data on how much money is at risk at each bank. (The Financial Times put this all together in a table in its Thursday paper.)
Click graphics to see interactive charts
Fortis
Société Générale
ING
BNP Paribas
Now, I know that seems like a lot of money, but in the scale of the recent financial crisis, it's not all that much. If you compare these amounts with what it took to bail out these banks in the aftermath of the Lehman bankruptcy, $35.4 billion is pocket change.
The governments of Belgium, the Netherlands and Luxembourg bailed out Fortis to the tune of $16 billion or so. The Dutch government injected $13.4 billion into ING. France, Belgium and Luxembourg put $9 billion into Dexia. France bought $13.9 billion in debt securities from six banks, including Société Générale and BNP Paribas, and then later lent an additional $7.4 billion to BNP Paribas.
Not the only thing to fear, but a biggie
But on another scale, these sums seem absolutely large enough to re-create the dynamic that made the post-Lehman crisis so devastating. The basis of the post-Lehman crisis was fear.Banks that had become accustomed to finding their capital in the financial markets by selling short-term commercial paper found themselves forced to borrow for shorter and shorter periods as buyers of bank debt tried to limit their risk by extending money for as few days as possible. Eventually, those few days turned into no days, and these banks found themselves unable to get financing at all.
Something similar is happening in the European banking sector right now. Banks are increasingly unwilling to lend to each other for any period longer than overnight. Of the almost $600 billion that turns over every day in the eurozone money market sector, 90% is now lent not for 90, 30, 14 or even seven days, but overnight. In normal times, the lending period averages between 30 and 90 days.
At Fortis, Greek debt equals more than 60% of tangible net asset value. At Dexia, the ratio is 30%. Both numbers are high enough to make potential buyers of short-term paper from these banks shy away.
But even banks with much lower ratios, such as Société Générale, BNP Paribas, ING, Barclays and Deutsche Bank -- where Greek debt ranges from a little more than 10% (at Société Générale) to just over 5% (at Deutsche Bank) -- aren't worry-free.
Continued: Bigger worries over Spain?
