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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

Alvarez & MarsalChallenges facing the European Banking Sector

September 2011


Banking crisis is back in europe
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


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


Total debt outstanding as of gdp bn
Total Debt outstanding as % of GDP €bn another 20 billion dollars from its 700 billion dollar financial rescue fund to help it with the losses incurred when bought Merrill Lynch

96%

60%



Debt exposure breakdown
Debt Exposure Breakdown domestic banks funding options


The outlook for ireland inc
The outlook for Ireland Inc domestic banks funding options

  • Bonds prices have stabilised. Ireland currently delinked from Greece

  • Exports are increasing

  • Banks are attracting new investors – Bank of Ireland


Non performing loans in europe
Non-Performing Loans in Europe domestic banks funding options


Outlook for europe
Outlook for Europe domestic banks funding options

  • 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


The next 12 18 months
The next 12-18 months domestic banks funding options

  • 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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