Thursday, June 28, 2012

Europe’s Mightiest Banks Still Grapple With Crisis

Five years after the financial crisis began, many banks throughout the euro zone are still in a weakened state, cut off from money markets because investors do not trust them, and effectively on life support from the European Central Bank.
While the talk has been mostly about Spain and Cyprus, European leaders meeting in Brussels on Thursday and Friday must confront broader problems in the banking system if they want to stabilize the euro zone, economists say.
What country could be next to face a banking crisis? It may not be one of the usual suspects. If the key elements are banks with exposure to declining economies, thin capital cushions and a government that would be stretched to finance a bailout, even France could be vulnerable.
Three of the four largest French banks had capital shortfalls even by the relatively lenient standards applied by European regulators, and the fourth has suffered a 27 percent share decline so far this year because of its exposure to Greece.
Germany, considered the strongest economy in the euro zone, is still dealing with publicly owned landesbanks that made bad investments in boom times. Even Deutsche Bank, the country’s largest, faced a downgrade by Moody’s last week because of what the ratings agency said was too much dependence on trading revenue.
“The weakness is throughout the euro zone,” said Marie Diron, an economist who advises the consulting firm Ernst & Young. “Restructuring of the banking sector really hasn’t taken place to the same extent as in the United States.” 

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