It looks like European banks have been hit much harder by the subprime crisis than U.S. banks. Last week, UBS (NYSE: UBS) wrote off about $19 billion, and today we have news that Royal Bank of Scotland (NYSE: RBS) suffered an $11.7 billion loss. We haven't seen numbers like that in the U.S. and this may be a story that needs to get more play. The European banking system is in far worse shape than the banks on our side of the Atlantic, and the impact that will have on global growth should not be underestimated.
Keep in mind that nothing like the FDIC or SIPC exists in Europe, so a major bank failure could be catastrophic for consumers. Banks have started tightening credit, and the once red-hot real estate sector has cooled, especially in places like Poland. I have friends who are in the real estate business in Eastern Europe and they say things have really slowed down.
Europe has already been hit with slowing growth, higher inflation, and high (relative) interest rates. Serious flaws in the banking infrastructure could result in a recession. Why don't we ever hear this?
For those worried about a real drawn-out slowdown in global growth, keep your eyes on the European banking system for a clue as to how long it could last.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 4/22/08.
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Reader Comments (Page 1 of 1)
4-22-2008 @ 5:54PM
william lindblad said...
Good for Aaron, you are one of the few who has taken notice. I have had this one in posts since Oct. 2007. There have been a few failures already, but they were covered quick. For the sake of it - Northern Rock remains a big IF currently supported by the B.O.E You are correct that they don't have anything on the Continent (at least that I am aware of) like the FDIC, but a similar system does exist in the U.K. I have not kept up on the E.U. and there might be something that neither of us are aware of. In any case, the loses in Europe and the U.K.(don't forget Ireland as 1 bank crashed there) will be large. I suspect there will be more, but they don't report until December. The real estate market is also on the wane in Southern Spain (a previouis HOT spot) and the U.K. The banks made some speculative loans in the U.K., akin to our sub-prime with similar results. So far, although the losses are staggering, it can be handled and not result in any more than a recession. The unknown factor is that of Asia. That is a huge question, yet un-answered and if the losses are as great, we are in for turmoil on a world scale. Since you do Israel I would suggest checking with the money lenders/exchange people. The small guys tend to keep a good eye on things and probably would be able to give a good forcast.
This crowd exchanges everybody's money and if anyone knows - they do.
4-22-2008 @ 6:46PM
joel said...
not really true in some European Country the Customer is backed up by the Government which give it an inside eye into the bak and they don't like it at all .
4-22-2008 @ 8:18PM
joe said...
See the people of Europe are just as stupid as we are. Doesn't that make you feel good?