Germany hides its own banks’ problems

Press conference by Michel Barnier, Member of the European Commission, on taking action on shadow banking, 19/03/2012. (EC Audiovisual Services).

Press conference by Michel Barnier, Member of the European Commission, on taking action on shadow banking, 19/03/2012. (EC Audiovisual Services).

The insistence of the Brussels, Berlin and Paris authorities that Cyprus is a special case and the rest of the Eurozone banking system is safe, has only superficial value. Markets do not believe that. It’s not only that the Greek, Italian or even the Spanish banking systems are in deep trouble. The problems are not confined either only in Luxembourg or Maltese banks having accumulated deposits five or more times their Gross National Product.

The truly big problems of the Eurozone financial system have not been confronted and they are still out there, threatening a much deeper crisis than the small waves tiny Cyprus caused this week. It’s the risky real estate loans in Holland, Germany and elsewhere, the even riskier loans to the shipping industry granted by a handful of German banks and the still large and unknown real exposure of German and French banks to the sovereign debt of the weaker Eurozone countries. The Sting had raised the matter many weeks ago.

On 21 February the Sting writer Elias Lacon wrote: “Earlier this week, Dr Andreas Dombret, Member of the Executive Board of the Deutsche Bundesbank (German national central bank), responsible for financial stability and risk controlling, delivered an open lecture in Hamburg, entitled “In the year 2013 – Challenges from a financial stability perspective” . Apart from the burning questions he posed for a number of Eurozone countries’ sovereign debt, he went as far as to question the stability of the commercial banking system of Germany”.

The total exposure of Germany’s banking system to the shipping industry was estimated by Dombret at €100 billion. Of course, this exposure is not restricted only to German operators and ship-owners. As a result, if the crisis continues engulfing the ocean-going fleet, the German financial system will be confronted with mounting problems. These loans are concentrated in a few banks, a fact that has already forced some of them to seek state aid. HSH Nordbank, with its major shareholders being northern German federal states, has already asked and given taxpayers’ support to the tune of €1.3 billion.

This is only the upper part of the iceberg, which don’t float only out in the oceans but some-times appear solidly pegged on lad in the form of real estate loans. If one adds to that also the exposure of German and French banks to Eurozone toxic sovereign debt the account takes unknown dimensions. Not to forget that mainly the German banks have already been favoured by the European Central Bank’s Securities Markets Programme in force until 6 September 2012, which helped the lenders unload around €210n in bad Greek, Italian, Irish, Spanish and Portuguese toxic sovereign bonds.

All in all, Germany cannot continue pretend that its own banking system is safer than the rest of Eurozone’s. The truth is that investors do favour German sovereign bond issues and accept near zero interest rates for their placement on them, but the German banks is another story as Rudyard Kipling would say.

 

 

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  1. interesting article

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