Posted by: Ben Levisohn on June 29, 2009
Investors appear to have put the banking crisis behind them, but they might want to reconsider. The Bank of International Settlement, an international organization of central banks, today announced today in its annual report that toxic assets still threaten the banks and a financial recovery. (Hat Tip: EuroIntelligence via Calculated Risk via the Guardian)
From the BIS report:
At this writing, the ability of those plans to generate a sustained recovery is an open question. The major reasons for doubt, discussed in the final section, are limited progress in addressing the underlying problems of the financial sector and the risks associated with the expansionary fiscal and monetary policies put into place during the period under review.
This probably shouldn’t come as a surprise. As astute investors have noticed, the government’s plans to get toxic assets off the bank’s books have been undermined by the banks themselves, who refuse to sell the securities at distressed prices, and by changes in mark-to-market accounting rules, which have given them the ability to ignore the problem.
And more bank assets may be on the verge of going toxic. Everyone knows that commercial real estate is the next domino to fall, but the worst may not have been reflected in bank earnings, says Douglas Burtnick, investment manager on the Aberdeen Global Financial Services Fund. “We’re still early in the game in knowing how that’s going to play out,” he says.