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Alvarez & Marsal Challenges facing the European Banking Sector

Alvarez & Marsal Challenges facing the European Banking Sector. September 2011. Banking Crisis is back in Europe. Financials index. 120. S&P500 financials. 110. 100. 0. 0. 1. 90. =. 0. 1. 0. 2. 80. n. a. j. x. e. 70. d. n. I. 60. Euro STOXX financials. 50. 40. jan.

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Alvarez & Marsal Challenges facing the European Banking Sector

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  1. Alvarez & MarsalChallenges facing the European Banking Sector September 2011

  2. Banking Crisis is back in Europe Financials index 120 S&P500 financials 110 100 0 0 1 90 = 0 1 0 2 80 n a j x e 70 d n I 60 Euro STOXX financials 50 40 jan maj sep jan maj sep jan maj sep 09 10 11 Source: Reuters EcoWin iTraxx Financials Senior 5 year CDS

  3. January 16th; The US government provides the Bank of America another 20 billion dollars from its 700 billion dollar financial rescue fund to help it with the losses incurred when bought Merrill Lynch June 22nd ; Greek PM tries to persuade MPs to approve €28 billion of cuts, tax rises, fiscal reforms and privatisation plans. Euro zone ministers say the legislation must be passed to receive a 12billion Euro loan Greece needs to pay its debts February 11th; Ireland says it will inject €7 billion into Bank of Ireland and Allied Irish in return for guarantees on lending, executive pay and mortgage arrears. September 30th;The Irish government guarantees deposits in the country’s main banks for two years May 2nd; Greece gets a €110billion bail out from other countries using the euro, and the IMF January 15th; The Irish Government says it is to nationalise the Anglo Irish Bank 2008 2009 2010 2011 November 21st; Irish Finance minister says he will recommend to the Government that the country formally request a bailout package from the EU, ECB and IMF September 15th; Wall Street Bank Lehman Brothers files for Chapter 11 Bankruptcy protection and Merrill Lynch is taken over by Bank of America

  4. Total Debt outstanding as % of GDP €bn 96% 60%

  5. Sovereign downgrades have an extremely negative effect on domestic banks funding options

  6. Debt Exposure Breakdown

  7. The outlook for Ireland Inc • Bonds prices have stabilised. Ireland currently delinked from Greece • Exports are increasing • Banks are attracting new investors – Bank of Ireland

  8. Non-Performing Loans in Europe

  9. Outlook for Europe • Ireland, UK, Eastern and Northern Europe in relatively good shape • Majority of sovereign debt is held by domestic and German banks • Therefore debt restructuring will adversely affect already weakened domestic banks • In the event of a debt restructuring of 30-50%; the worst hit will be domestic and state-owned German banks* • French banks already experiencing liquidity problems * Measured impact of a haircut that is greater than 5% of Tier 1 Capital

  10. The next 12-18 months • Banks can only mitigate the effects; unable to eliminate them. • Greater reliance on central bank liquidity & ECB/IMF funding options • Liquidity / Sovereign risk trade-off • The continent will have to become more transparent before we can hope for stability • Government administration needs to be restructured

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