Friday, May 9, 2014

Just how big is Europe's "bad bank" sector?


Fri., May 9, 2014

After decades of building a global investment bank, Barclays is sounding a retreat, the International New York Times DealBook blog reported. The British bank announced on Thursday plans to take an ax to its investment banking business — which has major operations in New York as well as London and Asia — by slashing half of its capital and more than a quarter of its work force, or 7,000 jobs. Instead, Barclays will focus on four core areas: retail and corporate banking, primarily in Britain; credit cards; banking in Africa; and, to a lesser extent, investment banking. Weaker businesses — including the trading of physical commodities outside of precious metals and some European branch networks outside of Britain — will be placed in an internal “bad bank” where they will be sold or run off. The overhaul represents a turnaround from the empire-building ambitions of Robert E. Diamond Jr., the bank’s previous chief executive. Mr. Diamond, a former bond trader at Morgan Stanley and Credit Suisse First Boston, aggressively built a global banking franchise after joining Barclays in 1996, culminating in the 2008 acquisition of the bulk of Lehman Brothers’ investment banking operations. But in the last few years, embarrassing regulatory investigations and penalties, combined with capital shortfalls and lackluster returns, have cast a cloud over what was once the swashbuckling and money-minting side of the bank and led to the 2012 ouster of Mr. Diamond after just 18 months as chief executive.

Fri., May 9, 2014

Just how big is Europe’s “bad bank” sector? On Thursday, Barclays PLC became the latest firm to set one up. The U.K. lender is placing $195 billion of assets into its “non-core” unit. According to calculations, that means the total value of assets at all the state-backed and privately-held bad banks set up in Europe since 2008 has now gone through the $2.5 trillion mark, making them collectively bigger than J.P. Morgan Chase & Co., which had a balance sheet of just over $2.4 trillion at the end of last year. (All currency conversions have been made at today’s rates.) Many of those assets have already been wound down but nevertheless that’s still a whole bunch of lousy loans and dodgy derivatives, The Wall Street Journal MoneyBeat blog reported. In total, more than $800 billion has been housed in European state-backed bad banks since the crisis, including those in Ireland (the National Asset Management Agency), Austria (KA Finanz AG), Spain (Sareb) and the U.K. (U.K. Asset Resolution). Two of the biggest are in Germany. The Erste Abwicklungsanstalt, which translates as “First Winding-up Agency,” was set up so that WestLB could offload some of its bad assets totaling $247 billion. A second German “bad bank”, FMS Wertmanagement, which is shedding $244 billion of Hypo Real Estate AG’s assets, was established in 2010. Several European banks have set up internal bad banks, variously calling them non-core units, legacy portfolios and non-strategic divisions.

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