Think the eurozone sovereign debt crisis is the only issue facing European banks right now? Think again, say David Enrich and Laura Stevens in The Wall Street Journal. Leveraged loans and collateralised debt obligations are among the dodgy debts that remain on the balance sheets of Europe’s big banks.
According to a report by Credit Suisse, 16 of Europe’s biggest banks still hold €386bn in “potentially suspect” credit and real-estate assets four years on from the financial crisis – that’s more than the €339bn of Greek, Spanish, Italian, Portuguese and Irish government debt the banks held at the end of 2010.
The banks also own “sizeable portfolios” of American subprime mortgages and commercial real-estate loans dating back to before 2008. RBS, for example, still holds €79.6bn in credit market assets, compared with €10.4bn of sovereign debt, while Deutsche Bank holds €51.9bn of credit assets and €12.8bn of sovereign debt.
Banking officials claim they have already cut exposure to risky assets and have sufficient capital to deal with any losses. However, analysts fear some banks haven’t fully written down the loans to reflect their current market values. While US banks have reduced their stockpiles of such assets by 80% since 2007, with European banks “there’s been very much a pattern of just holding them”, says Carla Antunes-Silva of Credit Suisse. She warns that these assets will be “another drag” on the sector.