European bank capital challenge…

Deutsche Bank London

So Deutsche Bank need another €11 billion of capital and BNP are potentially about to take a US criminal hit of $5 billion. Big numbers and it’s easy to let one’s eyes glaze over once again on all things banking. However, these numbers are really quite small when one considers the massive balance sheets of these European giants.

For perspective, Deutsche Bank wants its core capital for regulatory purposes to be be boosted from its current €35 billion. Now think about its €1.6 trillion of assets and leverage (depending on which numbers you pick!) of somewhere between 30x and 50x.

Now think about BNP and its €1.8 trillion of assets. It’s market capitalization is more than double Deutsche Bank’s €31 billion but it’s reasonable to assume leverage is still around 30x.

Oh, and Deutsche Bank’s derivatives exposure is north of $70 trillion. Yep, bigger than the entire global equity market. No amount of accounting rules, risk management or regulatory oversight can really give comfort to ordinary investors yet these two banks will feature in the vast majority of managed portfolios in Europe and way too many ETFs.

Was 2007 really that long ago?


Posted on by Gary

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