Are European banks sitting on 16.3 trillion in toxic assets?

If you had read the Telegraph on February 12, you would be inclined to believe there might be even more toxic assets on European bank balance sheets than on American bank balance sheets. However, anyone who read the Telegraph later would have seen the £16.3 trillion figure magically disappear (hat tip Richard).

The article I am referring to begins:

European bank bail-out could push EU into crisis
A bail-out of the toxic assets held by European banks’ could plunge the European Union into crisis, according to a confidential Brussels document.

“Estimates of total expected asset write-downs suggest that the budgetary costs – actual and contingent – of asset relief could be very large both in absolute terms and relative to GDP in member states,” the EC document, seen by The Daily Telegraph, cautioned.

“It is essential that government support through asset relief should not be on a scale that raises concern about over-indebtedness or financing problems.”

The secret 17-page paper was discussed by finance ministers, including the Chancellor Alistair Darling on Tuesday.

Nowhere is any mention of sums. Yet, the URL of the article is “http://www.telegraph.co.uk/finance/financetopics/financialcrisis/4590512/European-banks-may-need-16.3-trillion-bail-out-EC-dcoument-warns.html.” The page’s title in the browser is equally unambiguous: “European banks may need £16.3 trillion bail-out, EC dcoument (sic) warns – Telegraph”

163-trillion-title

I find this odd, as did an alert reader who informed me of these editorial changes to the article.  Apparently, a few  paragraphs were removed and the title changed.

So, I did a little sleuthing. Here’s a bit of what I found. If you do a Yahoo search for 16.3 trillion, the sanitized new version of the article pops up in 2nd place with the original title. It is followed in third place by a copy of the original content from the site blacklistednews.com. Note the highlighted text below.

163-trillion-words

Here’s my take on what happened here:

The Telegraph released this information including the 16.3 trillion pound figure only to have second thoughts about it for some undisclosed reason. They then changed the article without changing the URL title and also without this sleight of hand escaping readers. The original article title made its way onto Digg and into the mainstream consciousness.

You should note that these figures are far higher than any of the worst-case estimates released for toxic assets at U.S. banks.  However, we may be comparing apples and oranges as most estimates quote potential writedowns and this figure involves asset values on balance sheets.  Any way you look at it, the figures are quite high.

Does anyone have any idea what is going on here?

Sources
European bank bail-out could push EU into crisis – Telegraph
European banks sitting on $16.3 trillion of toxic assets… – Digg.com
‘Toxic’ EU bank assets total £16.3 trillion – blacklistednews.com
‘Toxic’ EU bank assets total £16.3 trillion – Reddit.com

14 Comments
  1. egghat says

    I can confirm, that the original text contained the number 16.3 trillion pounds. You can find an other copy of the original Telegraph text in the comments in a German blog where I found the story.

    http://rebellmarkt.blogger.de/stories/1335056/#comments

    Btw, there is a second article at the Telegraph which seems th reference the same EU paper.

    http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4593539/European-banks-toxic-debts-risk-overwhelming-EU-governments.html

    This article mentions that the EU exposure ist 75% of the exposure of the US. Well that would account to =16.3/0.75*1.4 trillion Dollar for the US …

    Time to say good night …

  2. Econophile says

    Whar kind of toxic assets? I know that they have a lot of debt from emerging economies on their books that looks as if they will default.

  3. egghat says

    @econophile

    Completly unclear. “impaires assets”. MBS, CDOs from the US, bonds from Eastern Europe, etc. pp.

    I’ve read somewhere in the last few days that in Lithuania (or one of the other baltic contries formerly known as “baltic tigers” …) around 80% of all real estate in the last years has been financed in foreign currencies (which in most cases means in Euro). And all these stuff sits in the books of the European banks now. Deutsche Bank, Unicredito and all the Austrian banks should have hundred of billions of this stuff in their books.

    1. Edward Harrison says

      @econophile, egghat is referring to Western European bank exposure to overvalued Eastern European assets. This region is going into Depression. Latvia is already there. And that means asset deflation and credit losses.

      This post from Tyler Durden puts things into perspective:
      http://zerohedge.blogspot.com/2009/02/glance-at-upcoming-eastern-european.html

      Also, here are a number of tags on my site with relevant articles:
      https://pro.creditwritedowns.com/tag/austria
      https://pro.creditwritedowns.com/tag/eastern-europe
      https://pro.creditwritedowns.com/tag/baltics

      The long and short is that this will be a big problem in the EU. Back in December, I said the following:

      https://pro.creditwritedowns.com/2008/12/top-ten-predictions-for-the-2009-global-economy.html

      “Eastern European loans – Countries like Ukraine, Hungary, Latvia, Estonia and Poland are going to see major downturns. Unfortunately, this will mean currency weakness. That has a major impact on debtors in those countries as they have borrowed in Euros (much like Icelanders had). Combine the currency impact with recession and you have the makings of a debt crisis. The banks loaning Eastern European corporates and homeowners these funds are situated in countries like Austria, Germany, Denmark, and Sweden. Therefore, expect to see significant writedowns at major European institutions as these loans sour. Will this be Europe’s equivalent of the Latin American debt crisis of the 1980s. Yes.”

      I am still very much of that view.

  4. Mark says

    Pretty sure this article was by Ambrose Evans Pritchard.
    He has been bang on the money many times, his comment is as good as any in the UK press.

    I disagreed with him once when he supported printing to avoid asset price deflation. However the consequences of massive bank failure well?

    As a mere carpenter I am not qualified but fractional reserve sucks.

Comments are closed.

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