Where Are the Buyers?

Posted by: Ben Vickers on October 24, 2011

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UBS, Deutsche Bank, Barclays and Credit Suisse all report third-quarter results over the next eight days. They will show again how much, or probably how little, banks have done to reduce their size. They will still show we have a banking problem that’s on a different scale to Europe’s sovereign debt crisis.

The European banking industry, which comprises more than 4,800 credit institutions, had more than 45 trillion euros ($63 trillion) of assets and 24 trillion euros of loans at the start of the year. Almost three quarters of these loans were in France, Germany, Italy, Spain and the U.K., according to Bloomberg Industry.

While the euro-zone members quibble about how to increase the reach of their 440 billion-euro rescue fund, much larger funding issues persist in the banking system. Morgan Stanley analyst Huw van Steenis says European wholesale banks may have to shrink their balance sheets by a cumulative 1 trillion euros to 2 trillion euros in the next year in response to funding pressures and a worsening market outlook. Look for bank job cuts, disposals being speeded up and businesses being scaled down, says JPMorgan Chase analyst Kian Abouhossein.

The question is who can possibly buy European banks’ assets at anything like a decent price?

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Financial markets are on the edge as investors await a solution to the European debt crisis. This blog examines the banks that hold billions of euros worth of Greek, Italian, and other sovereign debt; the governments that must pay off or refinance that debt; and the implications for the worldwide financial system if they can't.

Analyses or commentary in this blog are the views of the author and or commentators, and do not necessarily reflect the views of Bloomberg News.

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