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German Banks and the Eurozone Crisis

COMMENT: The German word for power is “macht”–derived from “Machiavellian.” One of the relatively few Internet entities covering the behavior of the supposedly “new” Germany is the GermanyWatch blogspot.

They feature a post highlighting the aggressive, skillfully cynical maneuvering of German financial institutions with regard to the Eurozone crisis. Far from being the ideal role model for the rest of the continent’s financial entities, German banks in fact pumped capital into the bubble economies of the peripheral countries, thus setting those countries up for the collapse that threatens the global economy.

(In that context, one should not lose sight of the fact that the major German banks operate under the stewardship of the Bormann capital network, as discussed in FTR #232.)

Not only did they “do everything right” while everyone else “did everything wrong,” but German banks had enormous exposure to the bursting bubble of the peripheral European economies.

Citing an article from The Independent, this post takes stock of that fact.

With Germany pushing for the afflicted nations to surrender political sovereignty as a condition for German financial assistance (fulfilling the goal enunciated by Friedrich List in the 19th century and put into action by the Third Reich in its above-ground phase), we see that German banks have been accessories or enablers for the looming disaster.

A 2012 article by Mr. Chu in The Independent details how the German bailouts have actually helped to assist German banks, illustrating “macht” or “Machiavellianism” in action.

In this context, we should not lose sight of two considerations we’ve discussed in the past.

One is the role of the mysterious Roland Arnall (“the Johnny Appleseed of subprime”) in helping to precipitate the global financial collapse that burst the European bubbles, setting the stage for the current German power play.

A refugee from Nazi occupied Europe, Arnall was altogether mysterious, masking everything but his avowed Jewishness and support for the Simon Weisenthal Center. When analyzing an individual who goes to great lengths to hide information about himself, those details he goes to great lengths to emphasize are significant–not for what they tell us about what he is, but for what they tell us about what he isn’t.

In FTR #690, we examined the very real possibility that Arnall was a “Bormann Jew.” What better cover for a Nazi financial gambit than to have a Jew fronting for the operation?

We should also remember that the Underground Reich and its SS foot soldiers had designed to execute conspiracies on behalf of German cartels in foreign countries.

Are Arnall and the German banks that set up the Eurozone crisis, thus jeopradizing the global economy representative of those conspiracies?

(Newer listeners should make a point of downloading, printing and reading Martin Bormann: Nazi in Exile. Increasingly, the programs and posts will be incomprehensible without doing so.

“German Banking Superiority Is a Lie”; Germany Watch; 9/2/2011.

EXCERPT: . . . . And of course, the very claims of economic superiority are a complete fabrication. German leaders defined the problem as an Anglo-Saxon one, and blamed America and Britain (all they have done is drop the claim that Anglo-American Capitalism is run by Jews. They still want to bring down Anglo-American capitalism).

As we have mentioned before, according to the Bank for International Settlements, Germany lent almost $1.5 trillion to Greece, Spain, Portugal, Ireland, and Italy. Add to that heavy German involvement in the credit binge in American real estate, and it is clear that wherever parties were taking place, German banks were supplying the drinks.

German banks are two and a half times more leveraged than their US banking peers, according to the International Monetary Fund.

Some of them have pulled out of the banking stress-tests that the rest of Europe has had to undertake, because they did not want the results to go public.

The article [by Ben Chu of the London Independent] also says; “A poll of Germans last month indicated that 71 per cent of the population are either partially or completely in the dark about the technical reasons behind the single currency crisis.” . . . .

“Ben Chu: Germany Is not Bailing out Europe, It Is Rescuing Itself” by Ben Chu; The London Independent; 7/5/2012.

EXCERPT: Poor Germany, forced to provide massive guarantees for its profligate European neighbours.

The Federal Republic did everything right – pushing its domestic labour costs down, keeping public borrowing low. And its neighbours did everything wrong – letting wages spiral and running up big public debt piles. But now prudent Germany is being forced to foot the entire bill.

And even without the additional costs of bailing out Greece, Ireland, Portugal, Spain and Cyprus, Berlin is facing a catastrophic bill thanks to the European Central Bank’s (ECB) provision of liquidity life support for the eurozone’s banking system. The Bundesbank has racked up vast claims against other central banks through the monetary clearing system known as “Target 2”.

That’s the standard narrative from Germany. And it’s largely false. The guarantees that Germany has extended – and the huge liquidity operations of the ECB – have indeed been used to assist the struggling nations of the eurozone periphery. But they have also, as new research from Goldman Sachs show, been used to bail out German banks. . . .

. . . .  German banks have been steadily extricating themselves from their exposure to southern Europe since 2007, as Chart 3 shows. German banks’ gross credit claims against the nations of the eurozone periphery have fallen by 50 per cent, down to €300bn. They have been busily off-loading eurozone assets to reduce the risks to their balance sheets.

And that has been taking place as the ECB has been extending its own balance sheet by providing cheap lending for banks across the continent to prevent them from running out of money. Here’s how that works:German banks have stopped lending to eurozone periphery banks. And those banks have been forced to fund themselves, instead, by tapping the ECB for cash.

But the risks return. Eurozone periphery nations are still running trade deficits with Germany. Those deficits that were previously financed by private German banks are now financed by the ECB. And thanks to the mechanics of the European monetary system that has resulted in the ballooning of the Bundesbank’s claims against other eurozone central banks.

“It is no coincidence that the increase in net foreign assets on the Bundesbank’s balance sheet roughly matches the decline seen on banks’ balance sheets,” said Dirk Schumacher of Goldman. “The Target 2 imbalances … have mainly replaced financial risk that was previously sitting on private-sector balance sheets.”

What this means is that the ECB and eurozone governments, as well as bailing out other members states, have quietly been rescuing German banks and, by extension, German savers. Without these emergency operations, the eurozone would have broken up, German banks would have gone bust and the savings of many ordinary Germans might have been wiped out. More likely the German taxpayer would have had been forced to bail out those banks.

So, as the German people distribute blame for the situation in which they find themselves, they should not ignore their own bankers. If those institutions had not made these investments and financed the current account deficits of Germany’s neighbours for so many years, their country would not be on the hook for hundreds of billions of euros of bad debts.

Yet this is something German politicians refuse to acknowledge. . . .

Discussion

15 comments for “German Banks and the Eurozone Crisis”

  1. Thanks for the mention Dave.

    Something we suggest all of your site visitors read, is Sara Moore’s new book.

    Combined with your work on the Bormann network, her exposure of historical German economic movements ties everything together.
    Sara is an economic historian, and very nice person too.
    http://www.howhitlercametopower.com

    We believe our only chance of solving the German domination issue before they wreak more war havoc on the world, is concentrating on their main power. BERTELSMANN.

    We have a big post coming soon on Bertelsmann, and its pretty shocking.

    Bertelsmann is the number1 driver of German imperial foreign policy.
    Their control and influence of publishing and media is preventing democratic nations from learning the truth of the last century. By preventing large scale publishing of books like Sara Moore’s, they are pulling the blindfold over entire nations.

    One thing we will be talking about is the Lisbon Constitution/Treaty.
    When the Lisbon Constitution failed to gain YES votes around Europe, it was the BERTELSMANN FOUNDATION which re-wrote and suggested the lie of the Lisbon Treaty. Bertelsmann has a HUGE influence in the politics of the EU. In fact they even have their own MEP, Elmar Brok. He is an employee of Bertelsmann, and is Chairman of the European Parliament Committee on Foreign Affairs!!

    Bertelsmann, by having built a large printer in Liverpool, have undercut other printers in the UK. By doing this, they have picked up 10 year printing contracts for major British newspapers and magazines, inc The Times and the FT! You can be pretty sure nothing will be printed in Brit media against Bertelsmann.

    Their huge influence over European media allows their propaganda press releases to be printed unchallenged – even by the BBC. Backward reporting over islamists empowered by the ‘spring’? Bertelsmann.

    Propaganda about German fiscal superiority and the need for German leadership in Europe? Bertelsmann.

    Rewriting of history in Polish school books? Bertelsmann.

    EU/German propaganda in major European TV shows? Bertelsmann.

    Anti-American sentiment in EUropean media, inc the spreading of propaganda about lack of WMD in the Gulf? Bertelsmann.

    Running of 5 British CITY/DISTRICT COUNCILS, WITH RESPONSIBILITY TO ENFORCE LAWS, AND THE RIGHT UNDER THE R.I.P.A ACT TO SPY ON AND INVESTIGATE BRITISH CITIZENS, USING BRITISH CRIMINAL RECORDS, CCTV, BRITISH COURTS, etc? BERTELSMANN!

    If we don’t expose that Octopus, it will be impossible to prevent Germany from having complete administrative control over Britain.

    Get Bertelsmann out of the way, and then remove Siemens’ influence, and we might stand a chance.

    Posted by GW | August 2, 2012, 5:51 am
  2. @GW–Do a search for Bertelsmann on this site. I did a massive series on German corporate control over American media in the late ’90’s and early part of the new century.

    The publisher for the SS during the war, Bertelsmann is realizing the goal of the Underground Reich as set forth in “Serpent’s Walk.”

    It is indeed important.

    Thanks for your work.

    Dave Emory

    Posted by Dave Emory | August 2, 2012, 6:54 pm
  3. What a surprise: In response to the growing consensus within the eurozone that the ECB needs to engage in emergency bond buying, Berlin politicians are calling for an overhaul of the ECB’s governing board the shrinks to board from 23 to 9 members and gives the largest countries permanent status on the 9-person council. The rest of the rabble get to share the remaining non-permanent seats. Vassal state technocracy here we come!

    WSJ
    August 5, 2012, 11:40 a.m. ET
    Write to Christopher Lawton at christopher.lawton@dowjones.com

    German Officials Push For More ECB Control

    German politicians and former European Central Bank officials sharply criticized the ECB over the weekend and pushed for Germany, as the largest contributor to the euro zone rescue effort, to have more control in the central bank’s matters, after President Mario Draghi signaled that the central bank could soon start purchasing government bonds.

    “The new situation that Germany provides a growing share of the euro rescue, but has only one vote just like any other country no longer fits,” Herbert Reul, a German politician and chairman of the Christian Democratic Union and Christian Social Union group within the European Parliament, told German magazine Focus on Sunday.

    On Thursday, Mr. Draghi indicated that the European Central Bank may soon step in to buy government bonds on the open market and consider other unconventional measures to lower the high borrowing costs of financially stressed euro-zone economies.

    The Deutsche Bundesbank, Germany’s central bank, has adamantly opposed the ECB’s government bond purchases for more than two years, arguing they discourage governments from implementing much-needed reforms.

    While Germany holds 27.1% of the capital of the central bank, Executive Board Member Joerg Asmussen is the only other German on the 23-member governing council after Mr. Weidmann, who has just one vote.

    In an interview with Focus magazine, Foreign Minister Guido Westerwelle said the problem is that “the economic and demographic weight in some committees and situations is not represented accordingly.”

    To strengthen the weight of the Bundesbank, Mr. Stark suggested to Focus magazine that the ECB remake its board, which today includes 23 members, to a nine-member board set up, where big member states such as Germany would receive a permanent seat and the other states would share the remaining seats.

    That would require changes to both the Maastricht Treaty and the ECB’s statutes, he noted.

    Posted by Pterrafractyl | August 5, 2012, 4:34 pm
  4. Proverbs 22:7
    “The rich ruleth over the poor; And the borrower is slave to the lender.”

    Posted by GK | August 13, 2012, 12:23 am
  5. True to form, Rajoy gives the Spanish public another kick in the gut:

    Bloomberg
    Spain Deficit Pain Bites Consumers as Rajoy Steps Up Cuts
    By Angeline Benoit – Aug 27, 2012 10:26 AM CT

    Spanish Prime Minister Mariano Rajoy’s austerity drive will intensify this week as a sales-tax increas tightens the squeeze on consumers whose spending is already plummeting.

    The move to raise the value-added tax on Sept. 1 will follow a flurry of data showing pressure building on household finances in the euro area’s fourth-biggest economy, home to a third of its unemployed. A report today showed mortgages fell 25.2 percent from a year ago in June after a 30.5 percent drop in May. Meanwhile, the Health Ministry today said spending on prescription drugs fell 23.9 percent from a year ago in July, the steepest drop since the series started in 1999, after the government last month increased the share patients pay for pharmaceuticals.

    A breakdown of second-quarter gross domestic product is due tomorrow and inflation on Aug. 30. Retail and current-account data are due Aug. 31 as well as public finance figures.

    The data will illustrate the extent of Rajoy’s challenge as he tries to curb the euro region’s third-largest budget deficit and considers whether to seek further international aid. Consumers have already endured a recession lasting three quarters as a prelude to his tax increase due this week and an annual cut in public wages for the month of December.
    ‘Dramatic’ Weakening

    “I expect a fairly dramatic weakening of GDP in the third and fourth quarters and further ahead as all components of domestic demand fall,” Ebrahim Rahbari, a London-based Citigroup Inc. economist, said by telephone. “Fiscal tightening will hurt substantially in Spain, and most of its effects are still to come.”

    Rajoy last month abandoned his forecast for a return to growth in 2013 as he unveiled spending cuts and tax increases through 2014 that will triple his planned austerity effort to a total of 15 percent of annual gross domestic product. New measures starting in September will add 102 billion euros to the 48 billion-euro adjustment initially planned for this year, which began taking effect in the second quarter.

    “The Greek example shows there is a risk of a downward spiral that can leave the economy stuck in a depression,” said Christian Schulz, an economist at Berenberg Bank in London.

    GDP data tomorrow may show how consumer spending already suffered during the second quarter. The report from the national statistics institute, INE, follows a July 30 estimate showing Spain’s recession worsened with a 0.4 percent contraction. The government forecasts domestic demand will fall 4 percent this year, more than twice last year’s drop. July retail statistics is expected to signal the weakness in household finances on Aug. 31, after a 5.2 percent annual decline in June.

    Tax Increase

    Adding to pressure on consumers is the VAT increase, the second since 2010, which will raise the levy to 21 percent from 18 percent. It’s the first item to take effect as part of Rajoy’s fourth budget-tightening exercise in eight months. Along with a one-month wage cut for civil servants and a reduction in jobless pay, it will account for most of the extra measures he has sought to curb the deficit this year.

    Higher sales tax risks “exacerbating” the slump in domestic consumption and sparking a spiral in which prices feed wages, said London-based economist Andrew Benito at Goldman Sachs Group Inc., a former Bank of England specialist on consumer spending.

    Consumer-price gains are already accelerating. The inflation rate rose to 2.2 percent in July because of higher costs of drugs and increases in local taxes, and probably reached an eight-month high of 2.3 percent this month, according to the median forecast of 10 economists in a Bloomberg News survey.

    Great, on top of it all, there’s also inflation picking up, due, in part, to higher drug costs even though spending on prescription drugs fell 23% annually. I guess that means the Bundesbank gets to lecture Spain about the risk of debt addiction:

    UPDATE 2-Bundesbank chief says ECB bond buying “like a drug”

    Sun Aug 26, 2012 8:21am EDT

    * German central bank concerned at ECB’s changing role

    * Says bond proposal looks like printing cash to fund govts

    * Interview published ahead of Sept. 6 ECB meeting

    By Paul Carrel

    FRANKFURT, Aug 26 (Reuters) – The head of Germany’s Bundesbank stepped up his opposition to the European Central Bank’s latest moves to battle the euro zone’s debt crisis on Sunday, saying that plans to buy bonds risked becoming a drug on which governments would get hooked.

    In the latest sign of a deepening rift within the ECB that has worried financial markets, Jens Weidmann warned in an interview in weekly Der Spiegel that the buying programme verged on the taboo for the bank of outright financing of governments.

    He also hinted he was not alone at the ECB in his concern over the programme – in contrast to indications by the bank’s President Mario Draghi that Weidmann had been isolated in expressing reservations.

    The ECB is being forced to take a greater role in fighting the crisis while governments negotiate legal and political hurdles to coordinating a longer-term response, but the Bundesbank wants to limit the scope of central bank action.

    Draghi is expected to detail the bond-buying plan after a Sept. 6 meeting of the bank’s 23-member Governing Council.

    “Such a policy is for me close to state financing via the printing press,” Weidmann told the weekly magazine. “In democracies, it is parliaments and not central banks that should decide on such a comprehensive pooling of risks.”

    Financing governments has long been a line in the sand for the ECB. Weidmann’s predecessor as Bundesbank chief, Axel Weber, quit last year in protest at the ECB’s existing, but now dormant, bond-buying scheme – the Securities Markets Programme (SMP).

    “We should not underestimate the risk that central bank financing can become addictive like a drug,” Weidmann said.

    The Bundesbank retains substantial influence within Germany and on financial markets due to its inflation-fighting credentials but, as just one of 17 constituents at the ECB, it is unlikely it could scupper Draghi’s plan.

    Policymakers are posturing over the programme ahead of their Sept. 6 meeting, at which markets will be looking for the central bank to spell out more details of the plan.

    Central bank sources told Reuters on Friday that the ECB is considering setting yield band targets under the new bond-buying programme to allow it to keep its strategy shielded and avoid speculators trying to cash in.

    Weidmann said setting such yield band targets was a “sensitive notion” but rejected suggestions that he was isolated on the ECB Governing Council in having such reservations.

    “I hardly believe that I am the only one to get stomach ache over this,” he said.

    ECB DISPUTE

    Der Spiegel also reported that there was a dispute within the ECB over the form of the programme, with officials from countries like Spain and Italy pushing for unlimited ECB intervention in secondary bond markets.

    ECB officials from northern euro zone countries only want the central bank to intervene in a “short, but energetic” way when bond yields “explode” upwards, the magazine said.

    You have to love the method of central banking on display: we promise to do nothing to prevent a crisis in the bond sector unless bond yields “explode”, at which point we will do “something”, but only for a short period of time: The “just in time, just barely enough” method of central banking psychological warfare. I can’t say that’s it’s been an effective policy thus far but it’s certainly interesting to watch.

    Posted by Pterrafractyl | August 27, 2012, 12:36 pm
  6. Hi, long time listener.
    this is my first time posting a comment here.

    I figured you all might be interested in this blog post. It essentially summarizes the general ill will between the German gov. and the Greek people. I took notice because it clearly is in line w/ Mr. Emory’s research. Excuse the imperfections. English is not the writer’s 1st language. I hope this is helpful:

    http://farosradio.gr/el/faros-news/item/2320-germany-against-russia-in-greek-battlespace.html

    Posted by diogenes | September 19, 2012, 12:16 am
  7. In case we needed a timely reminder of the fact that Spain’s housing bubble banking crisis was facilitated with the full awareness of big German lenders, here we go:

    Updated September 24, 2012, 8:15 p.m. ET
    WSJ
    State of Europe’s Banks: Safe and Stressed
    Germany’s Lenders Find Fortunes Tied To Spanish Peers

    FRANKFURT—As Europe races to restore confidence in Spain’s finances and the euro, Germany has another reason for urgency in resolving the crisis: the health of its own banks.

    German lenders have the highest exposure in Europe to Spain, at $139.9 billion, of which $45.9 billion alone is exposure to banks, according to the Bank for International Settlements.

    European countries agreed to extend to Spain a €100 billion ($130 billion) aid package for its ailing banks this summer, but concern is growing that Spain might need a more comprehensive rescue package to shore up its public finances. A key test of Madrid’s financial system will come on Friday, when the country unveils results of the latest “stress tests” of its banks, a process that will determine how much new capital they need.

    German banks have largely hedged or disposed of their holdings of Spanish government debt, but they remain heavily invested in Spanish financial institutions, commercial real estate and in other businesses hit by the crisis.

    Concerns that Spanish assets would be severely impaired if the country’s crisis worsens contributed to Moody’s Investors Service’s recent decision to change its outlook on Germany to “negative” from “stable.” Moody’s, in its analysis, highlighted the vulnerability of Germany’s banking sector to a worsening euro crisis and warned that those risks could cost the country its prized triple-A credit rating.

    “The German banks’ sizable exposures to the most stressed euro-area countries, particularly to Italy and Spain, together with their limited loss-absorption capacity and structurally weak earnings, make them vulnerable to a further deepening of the crisis,” Moody’s wrote.

    One of the biggest exposures German banks have to Spain is through covered bonds, long a favorite fundraising tool of Spanish banks. Such bonds are backed by collateral, usually residential mortgages, and are generally considered low risk because if a bank defaults on the loan, the creditor receives the collateral. In Spain’s case, however, the steep decline in the real-estate market means that the collateral would be worth less, likely leaving the lender with a loss.

    Germany’s troubled public-sector lenders, known as Landesbanks, are particularly exposed to Spanish covered bonds and senior bank notes, according to analysts.

    Landesbank Baden-Württemberg, known as LBBW, had a total exposure to Spain of €5.2 billion in June, with nearly a quarter of that in exposure to financial institutions. BayernLB reported an exposure of €4.9 billion at year-end, and NordLB had an exposure of €3.6 billion.

    BayernLB said it reduced its exposure to the Spanish banking sector by nearly €1 billion in the first half to €1.7 billion, in part through large repayments. A spokesman for NordLB said the bank is working to decrease its exposure to Spain. Spokesmen from the banks declined to comment further.

    Landesbanks rushed in and invested heavily in European bonds issued by various countries and banks—along with mortgage-backed securities and other risky assets—in the early 2000s as their access to extremely cheap funding through state guarantees was phased out by the European Union.

    During that same period, the volume of outstanding jumbo covered bonds from Spain, known as cedulas, increased drastically, more than doubling from €61 billion in 2003 to €155 billion in 2005, according to data from the European Covered Bond Council.

    Posted by Pterrafractyl | September 27, 2012, 8:08 am
  8. How inspirational:

    Bloomberg
    Merkel Emulates Kohl German Unity Turning Euro Crisis Into Votes
    By Tony Czuczka and Leon Mangasarian – Oct 3, 2012 3:00 AM CT

    Three days before East and West Germany reunited in 1990, Angela Merkel made an acquaintance that was to put her on the path to power.

    An East German scientist propelled into politics by the fall of the Berlin Wall and the communist regime’s collapse, Merkel wangled an audience with Helmut Kohl at a party event in Hamburg. Within four months, Kohl had ridden German reunification to a landslide third election victory and Merkel secured a post in his Cabinet.

    Just as Kohl knew what Germans on both sides of the border wanted when they united 22 years ago today, Merkel is tuned in to voters who balk at paying the price of the united Europe Kohl brought about. While her peers in France, Italy and Spain have been removed in the three years since the debt crisis emerged in Greece, Merkel’s ability to channel domestic public opinion paired with a still-expanding economy led polling company Forsa to conclude that she looks unbeatable before 2013 elections.

    “The crisis makes people rally behind Merkel,” Gerd Languth, a historian and professor of politics at the University of Bonn whose 2005 biography of the chancellor documents her meeting with Kohl, said by phone. “People see her as being on top of the issues and the only one who can solve the problems.”

    Steinbrueck’s Challenge

    Merkel’s edge over three opposition leaders is now so wide in a Forsa poll that she “appears unbeatable” a year from the election, Stern magazine said Sept. 19. Peer Steinbrueck, Merkel’s first-term finance minister who was nominated on Oct. 1 as her main challenger, trails her approval rating by 22 percentage points. She is Germany’s most popular politician and her approval rating is hovering near the highest since November 2009, a separate FG Wahlen poll released Sept. 28 showed.

    The chancellor hasn’t offered her political foes much space to land blows as she preaches budget cuts for the euro area, refuses to underwrite the region’s debt with German economic might and barely acknowledges anti-austerity protests from Greece to Spain. Instead she tells weaker euro countries there’s no prosperity without pain.

    “We remain true to our philosophy of no help without something in return,” she said in Brussels in June. That followed an all-night European Union summit at which Merkel fended off pressure from Italy and Spain for direct bank bailouts and government-backed buying of sovereign bonds.

    These are really just a minor quibbles with Angela regarding her philosophy of only offering help in exchange for something else: that might actually be closer to ‘barter’ than ‘help’. Of course, the ‘thing’ the helper might be asking for could simply be that the individual help themselves. But when this philosophy’s prescribed form of self-improvement comes in the form of the recipient actively destroying their future skills and economic capacity and there’s no serious reason to believe this kind of ‘help’ will actually be helpful, it’s also kind of a shitty philosophy.

    Posted by Pterrafractyl | October 3, 2012, 8:28 am
  9. In case you were ever curious about what a bad actor trying to emote reverse Stockholm Syndrome might look like, Angela just gave us an idea.

    Posted by Pterrafractyl | October 9, 2012, 1:47 pm
  10. Moody’s just warned on the continued weakness in the German banking sector. It turns out that all those real estate loans to Spain and Italy are still threatening to decimate the German banking sector should those banks incur any major “unforeseen” losses. It’s not new news, but it’s still extremely relevant:

    NY Times
    Moody’s Warns of Weakness in German Banking Sector
    By JACK EWING
    Published: October 19, 2012

    FRANKFURT — The debt ratings agency Moody’s Investors Service provided a reminder Friday that the vaunted German economy has a major weakness: its banking system.

    In a report, Moody’s warned that German banks suffer from meager profits, rising risk and insufficient reserves to absorb losses. The rating agency reaffirmed the negative outlook it has assigned to German banks since 2008.

    The poor state of German banks seems surprising considering that the country’s economy has held up fairly well to the euro zone crisis. In addition, German banks benefit from the country’s status as a haven from the turmoil and are able to borrow money at much lower rates than counterparts in other European countries. There is no real estate bubble and households are not over-indebted.

    German banks did, however, invest heavily in countries like Spain and Italy before the crisis, because they could earn more profits there than at home. Four years after the financial crisis began, they remain exposed to problems in those countries, Moody’s said.

    In addition, Moody’s said, Germany still has too many banks in relation to the size of the country. The oversupply pushes down lending rates and profits.

    “Intense competition and low interest rates are causing margin pressure that will likely further erode already-weak bank revenues and profits,” Moody’s said in a statement early Friday.

    The combination of low profits and high leverage “will make it difficult for many German banks to cope with major (unforeseen) losses,” Moody’s said.

    The report comes after European leaders meeting in Brussels until early Friday agreed on legislation that will concentrate banking supervision at the European Central Bank, a measure aimed at preventing national regulators from favoring their own banks. Weak regulation is blamed on problems in Spanish banks. But the leaders were vague on when the new regulatory regime will take shape, apparently in deference to German political sensitivities.

    German leaders have resisted giving up supervisory control of smaller and mid-sized banks, which are often owned by states or municipalities and are a formidable lobby in Berlin.

    This report once again reminds us all that the eurozone crisis was NOT at all due to a housing bubble fueled by German banks that exploded in a highly foreseeable manner that lenders should have been fully aware of when making the loans. Instead, it was was primarily due to overly protective labor laws. Yeah, that’s the ticket.

    Posted by Pterrafractyl | October 19, 2012, 9:27 am
  11. The Bundesbank called, it wants its gold back:

    Jan. 15, 2013, 10:40 a.m. EST
    Germany wants its gold back; platinum pops
    February gold rises $11, helped in part by rising Japan inflation outlook

    By Barbara Kollmeyer and Sarah Turner, MarketWatch

    MADRID (MarketWatch) — Goodbye, Big Apple. Adieu, Paris. It seems the Bundesbank could finally be ready to bow to some longstanding public pressure and bring its foreign gold reserves home.

    Germany’s Handeslblatt newspaper claimed Monday night that the Bundesbank has developed a new strategy that involves fewer gold bars flung afar. It seems the original reason for holding its gold at the New York Federal Reserve and other central banks — in places for decades as a measure of security — no longer holds up. The central bank’s press office said a news conference is planned for Wednesday morning, and the topic will be gold reserves.

    The relationship between a central bank and its gold are closely watched by gold investors, since central banks hold so much of the world’s gold. February gold GCG3 +0.90% rose $10.20, or 0.6%, to $1,680 an ounce on Tuesday, helped in part by stronger gold interest in Japan and expectations of a rising inflation outlook from the Bank of Japan. Gold has traditionally been used as a hedge against inflation, so signs of higher inflation tend to work in the metal’s favor.

    Thorsten Polleit, Frankfurt-based chief economist at Degussa, a precious-metals firm, said the public has been long demanding an audit of the German gold reserves and repatriation of those reserves. Some fuel was thrown on that fire in the last year by the financial crisis.

    “People have gotten a sense of how bad things could become and gold is the ultimate means of payment. The euro won’t last forever, [and] gold, for various reasons, is the anchor,” said Polleit.

    Polleit said that the Bundesbank hasn’t had those worldwide reserves audited down to the last bar for decades, maybe never, much to the unhappiness of the general public. So in a sense, it may be a bit of a mystery just what is in the vaults of the New York Federal Reserve, which holds a 45% chunk of Germany’s gold reserves. The Bank of England and the Bank of France hold 13% and 11% each. The Bundesbank itself holds 31% of those reserves.

    By country, Germany has the largest gold holdings behind the U.S.

    “In recent years it’s been quite popular to swap gold stocks for holding government bonds. … There’s no exact data but some fear gold could have been lent out. It might still be there in physical terms but its kind of hard to decide who is the actual owner,” said Polleit. He said the Bundesbank has said some bars might have been checked, but not the total stock. Read what the Bundesbank had to say about auditing last October

    He said the Bundesbank has always tried to play this whole gold reserves issue down, but now they may be either poised to move more reserves out of foreign countries, or come completely clean about all of those reserves.

    Still, Polleit isn’t expecting some “aha” moment from the Bundesbank to have any effect on physical prices. He expects gold will hit $2,070 an ounce this year on the view that governments are printing ever great amounts of money.

    ZeroHedge financial blog took a grim view of any move by the Bundesbank to take its gold out of New York. Such a decision would be a sign that trust between central banks is now ending.

    While it’s “one thing for a ‘crazy, lunatic’ dictator such as Hugo Chavez to pull his gold out of the Bank of England, it is something entirely different, and far less dismissible, when the bank with the second most official gold reserves in the world proceeds to formally pull some of its gold from the bank with the most,” said ZeroHedge. Read article on ZeroHedge

    Note that Pimco’s Bill Gross is also pushing the idea that the central banks are losing trust with each other. And this doesn’t appear to be a potential division between, say, the Bundesbank an the Federal Reserve or Bank of Japan…it includes the Bank of France, Germany’s long-standing key partner in the eurozone! This is certainly a curious move given the recent PR push of the idea that the eurozone crisis is over.

    Posted by Pterrafractyl | January 15, 2013, 10:09 am
  12. Here is the understatement of the year:

    http://www.businessweek.com/news/2013-06-09/shady-bank-funded-nazis-pushed-euro-has-no-oversight-books

    Shady Bank Funded Nazis, Pushed Euro, Has No Oversight: Books
    By Daniel Akst

    If you think the Bank for International Settlements is just a colorless intermediary, Adam LeBor’s new book will disabuse you of that notion.

    “Tower of Basel: The Shadowy History of the Secret Bank That Runs the World” is a full-blown attack on the institution, which is based in Switzerland but answers, in the author’s view, to practically no one.

    LeBor details the appalling role of the BIS in funding the predations of Nazi Germany, a well-known blot on its record. Then he indicts the bank for its part in the rise of technocratic postwar Europe, in particular as midwife to the disastrous euro. LeBor wants the place shut down, or at least opened up.

    He makes a decent case, but only decent. Founded in 1930 by two legendary central bankers — Britain’s Montagu Norman and Germany’s Hjalmar Schacht — the BIS was supposed to administer World War I reparations from Germany. But as Keynes and others had argued, the imposition of such crushing reparations was a terrible idea, and not long after the bank was established Germany wriggled out of them.

    Yet the BIS lived on, sustained by a founding agreement that gives it an extraordinary degree of autonomy, a safe haven in Switzerland and a revenue stream from transaction fees. Besides, it was useful — as a facilitator of international transactions and a locus of cooperation among central bankers. It was especially useful to the Nazis.

    Nazi Gold
    Though headed by an American during World War II, the BIS adhered to a priestly neutrality, interpreting its mandate in the most technical possible fashion in order to continue dealing with all sides in the conflict. Unfortunately, this put the institution squarely in the position of abetting Nazi terror.

    The BIS accepted plundered gold and made it possible for Germany to acquire desperately needed war materiel. It even permitted Germany, once it had invaded Czechoslovakia, to confiscate that nation’s gold reserves.

    Tarred by its scandalous role in the war, the BIS was targeted afterward for dissolution by enemies in Washington and elsewhere. But it managed to beat back these efforts and eke out a role for itself in the postwar world — first as the financial mechanism for American efforts to rebuild Europe, and then for the accelerating project of European unification.

    Modern Europe
    The latter, culminating in the euro, is cause for further damnation by the author, for whom the trans-national vision of a modern Europe ruled by mandarins in Brussels and Basel isn’t so different from the Nazi vision of a unified continent equally unruffled by obstreperous voters.

    Owned and operated by the world’s central banks, the BIS today is both their banker and their refuge, a place where central bankers meet every other month to dine really well and schmooze in confidence that no one will learn what was said. The BIS also performs valuable research on international finance.

    Is this really so bad? LeBor thinks so, complaining that “BIS is an opaque, elitist and anti-democratic institution, out of step with the 21st century.”

    Maybe. But his case against the BIS, whose role is wildly exaggerated in the book’s subtitle, would be a lot stronger if he spent any time at all explaining what it does. That would make it easier to judge whether these tasks are important, or could be taken on easily by others.

    Unfortunately LeBor describes the bank’s functions in only the most cursory terms. The BIS is secretive, no argument there. But surely the general nature of its lending can be described, as well as the source of its capital and profits. The latter amounted to more than $1 billion tax-free in 2011-12 alone.

    Resistant to eradication, the BIS can perhaps be reformed, and here the author has some sensible suggestions, including greater transparency and directing a significant chunk of profits toward philanthropy. After all that’s come before, you’d think the occupants of the tower of Basel (the bank’s groovy round headquarters) would be on their best behavior.

    “Tower of Basel” is published by PublicAffairs (336 pages, $28.99). To buy this book in North America, click here.

    (Daniel Akst writes for Muse, the arts and leisure section of Bloomberg News. The opinions expressed are his own.)

    Muse highlights include John Mariani on wine and Philip Boroff on theater.

    To contact the writer on the story: Daniel Akst in New York at danielakst@gmail.com.

    To contact the editor responsible for this story: Manuela Hoelterhoff in New York at mhoelterhoff@bloomberg.net.

    Posted by Swamp | June 10, 2013, 9:22 am
  13. http://www.presseurop.eu/en/content/news-brief/3953321-leading-exporter-running-out-steam

    Leading exporter running out of steam
    9 July 2013
    Presseurop
    Die Welt

    “Exports are collapsing,” headlines Germany daily Die Welt commenting on the latest figures released by the Federal Office of Statistics showing that in May 2013 exports fell to their lowest level in three-and-a-half years, posting a 2.4 per cent drop compared with April 2013, and shrinking 4.8 per cent compared with May 2012.

    This decline is explained by the “disarray of global markets,” says Die Welt –

    [On the one hand,] the internal European market, the major outlet for German exports, remains weak and [on the other hand] countries such as China are not compensating for this trend.

    Business with the Eurozone, hard hit by the debt crisis, is particularly bad. Exports to the Eurozone plummeted by 9.6 per cent between May 2012 and May 2013, the paper notes.

    Given that legislative elections are scheduled for September, Die Welt urges political parties to keep in mind that –

    For a long time, the German economy defied the shrinking international economic context. But now that the economy is reviving elsewhere, the economic situation is regressing in a worrisome manner in our country. […] This does not mean that the German economy will inevitably go into crisis. […] But the boom is over and it is high time for politicians to take note of this. […] Income tax reform, as proposed by the opposition, comes at a bad time […] and the re-establishment of a tax on wealth represents the greatest brake imaginable for small and medium-sized firms.

    Posted by Vanfield | July 15, 2013, 10:32 pm
  14. @Vanfield: Yes, exports are collapsing, but imports are collapsing even more so there’s a growing net trade surplus. All it took to achieve this was the destruction of domestic demand across the continent. So, according to eurozone logic, it’s all good:

    Euro zone imports fall steeply in May, prices rise in June

    By Martin Santa

    BRUSSELS | Tue Jul 16, 2013 5:38am EDT

    (Reuters) – The euro zone’s trade surplus widened in May from a year earlier, driven mainly by falling imports rather than export growth, the EU’s statistics office Eurostat said on Tuesday.

    Eurostat also confirmed June annual inflation at 1.6 percent, pushed upward by volatile energy and food prices, from 1.4 percent in May.

    The trade surplus for the 17 countries using the euro, unadjusted for seasonal swings, rose to 15.2 billion euros ($19.8 billion) in May, from a revised 14.1 billion euro surplus in April.

    Overall exports were flat on the year in May, with imports decreasing by 6 percent.

    The malaise in imports underscores the euro zone’s struggle to revive domestic demand that is hampered by record unemployment, reluctance among consumers to spend and companies that are struggling to access credit and invest.

    Imports fell in the bloc’s four largest economies, with Germany reporting a 1 percent drop, France declining by 2 percent, Spain down 4 percent and Italy sliding 6 percent.

    Trade with China fell on the year in May, on a non-seasonally adjusted basis, while exports to the United States increased by 2 percent, with imports down by 7 percent.

    Inflation, meanwhile, remains below the European Central Bank’s target of close to but below 2 percent.

    The ECB left its key interest rate at a record low in July and broke a taboo never to pre-commit on rates, saying it would leave monetary policy loose for an extended period of time to help an expected recovery later this year.

    The ECB sees exports, low interest rates around the world and less volatility on financial markets as helping the euro zone leave behind its longest recession since the creation of the single currency in 1999.

    Posted by Pterrafractyl | July 16, 2013, 1:14 pm
  15. Here’s an interesting article on some of the bailout packages that have helped keep Germany’s publicly-owned Landesbanks afloat during the crisis years:

    Navigating the financial labyrinth of Germany’s Landesbanken

    By Laura Noonan

    HAMBURG | Tue Sep 17, 2013 1:13am EDT

    (Reuters) – To the casual observer, the Landesbanken’s results for the first half of this year might suggest Germany’s publicly-owned regional banks are in rude financial health.

    But the headline numbers belie a more complex reality.

    Four of the five major Landesbanken boasted improvements in profits for the first half of 2013, sometimes quite dramatic, like the 400 percent increase in pre-tax profits at Hamburg and Kiel based shipping lender HSH Nordbank.

    As a group, their ‘tier one capital ratios’ – a measure of how much high quality capital they have to weather future losses – came in slightly ahead of Europe’s thirty largest banks by market capitalisation.

    Both measures are open to particular quirks in the Landesbanken world.

    Take HSH – Christian van Beek, of ratings agency Fitch, points out that the bank can actually obtain compensation as some loans that were expected not to be repaid are sold off at a loss or a write down is agreed.

    This is because, a provision for a bad loan comes off HSH’s profit and loss account, but once the loss on certain loans is actually crystallised, HSH can claim against a 10 billion euros state-sponsored asset guarantee scheme.

    “Net income/loss is currently not a good indicator for the bank’s progress in establishing a viable business model,” said van Beek, who instead focuses on the bank’s new business generation.

    On the capital front, while European banks are tapping their shareholders for more support, some Landesbanken will be treading the opposite path as they wean themselves off state aid.

    A more pertinent measure for sector-watchers is profit margin.

    Annualised return on equity ranges greatly across the Landesbanken, from 10.3 percent at Bayern LB to 2.5 percent at Nord LB for the first half of 2013, to average 6.12 percent across the group.

    Europe’s 30 biggest banks had an annualised average return on equity of 8 percent, according to an analysis by Reuters of the largest banks as ranked by market capitalisation.

    “Will Landesbanken ever make very strong European competitive banking? – The answer is no, the banking structure does not allow high market share, big penetration or earnings power,” a senior Landesbanken banker told Reuters.

    While senior Landesank officials might be predicting that the Landesbanks will never become competitive in the European banking sector, it’s worth recalling that they actually were quite aggressive players from 2001-2008, especially in the “asset-backed commercial paper” (ABCP) market:

    The Landesbanken: Inside Germany’s trillion euro banking blind spot

    By Laura Noonan

    HAMBURG | Tue Sep 17, 2013 8:05am EDT

    (Reuters) – Many Germans feel that whoever wins Sunday’s election, they should not fund any more bailouts of fellow European countries, whose errant banks are a particular bugbear for Berlin.

    But a cornerstone of Germany’s own banking system, which has already received state bailouts, is facing fresh challenges, increasing the need for reforms which will be very hard for any new government to deliver.

    Founded in the 19th century to promote regional development, the publicly-owned Landesbanken play a hallowed role as low cost lenders to local projects and the ‘Mittelstand’, the small and midsized firms central to the eurozone’s most resilient economy.

    With combined assets of a trillion euros, they account for 12 percent of the country’s total banking assets, and 3 percent of Europe’s as measured by the European Central Bank (ECB).

    The eurozone’s steps towards banking union have triggered the toughest stress tests banks have ever faced and new global regulations impose higher capital demands particularly difficult for low-margin banks like the Landesbanken to achieve.

    At the same time, their core business is threatened by increasing competition from international banks like France’s BNP Paribas, which want a bigger part of the action in Europe’s economic powerhouse.

    Experts from the Organisation for Economic Cooperation and Development (OECD), ratings agencies and German academia say the best Landesbanken solution is restructuring to leave as few as two players with well-defined businesses.

    The prospect appears remote, undermining Berlin’s reputation as the driver of European banking reform.

    None of the five main Landesbanken – Hanover’s Nord LB, Munich’s Bayern LB, Stuttgart’s LBBW, Hamburg and Kiel based HSH Nordbank and Frankfurt’s Helaba – said they thought industry consolidation likely when asked by Reuters for this article.

    “CIVIL SERVICE” CULTURE

    Long-beset by the problems of politically motivated lenders, and cultivating a work culture several employees describe as “civil service like” with a clear-out at 5 p.m., Landesbanken did not begin to build serious problems until 2001.

    The trigger, several experts say, was a surprise agreement between Germany and Brussels to end a sovereign guarantee on bonds sold by Landesbanken by 2005. The Landesbanken’s response was to sell as much debt as they could before the curtain fell.

    They piled into international lending and high-yielding bonds, sponsoring 8.4 percent of the global supply of asset backed commercial paper (ABCP) by 2006, according to a major 2012 study on Landesbanken by four German academics.

    The Landesbanken expansion ended in bailout. In 2008, German states began the first of five bailouts totalling 70 billion euros, including the rescue of and eventual shutting of WestLB, which lost heavily on bets on the U.S. subprime market.

    Others stayed afloat, avoiding deep restructuring.

    It’s important to recall that the asset-backed commercial paper market (i.e. short-term and medium term loans to business that are typically rolled-over indefinitely) was instrumental in fueling the globaly housing bubble. So if, as described above, the Landesbanks were behind 8.4% of the global supply of asset-backed commercial paper in 2008, it’s shouldn’t be surprising that a number of Landesbanks required such big bailouts in recent years because the asset-backed commercial paper market was pretty important in fueling the global credit-bubble. This was especially true in the US housing markets where the Landesbanks were very active.

    It’s also important to recall that, bailouts aside, it could have been a lot worse for the Landesbanks. A LOT.

    Posted by Pterrafractyl | September 19, 2013, 11:02 pm

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