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Feb 19 2009

Seven big German banks ‘not creditworthy’

Published by at 5:21 pm under Europe,Top Stories

The latest issue of Capital, the monthly German business magazine, arrived today with a story which I expect to make huge waves in the next few days.

Germany has eight system-vital banks (“systemwichtige Banken”) – defined by the German government as banks which will pull down the financial system, should one or more go bust.

In other words, too important to be allowed to go bust.

The German government has vowed to protect these banks by injecting fresh capital whenever required. To date only one bank, namely Commerzbank, has knocked on the door for help. It got a capital injection of just over €8 billion at 9%. 

The magazine Capital made a few calculations (and assumptions) and came to the astounding conclusion that seven of Germany’s eight “system-vital” banks can’t afford government’s help. Apart from Deutsche Bank, all the others would slip into the red, if they had to take up €8 billion at 9%.

That means, they are in a cul-de-sac: Without government’s help they might not survive and with government’s help they will go under (because their income streams are too weak to service government loans).

The “uncreditworthy” banks are Hypo Real Estate, LBBW, BayernLB, WestLB, Landesbank Hessen-Thüringen, HSH Nordbank and Commerzbank.  

According to the magazine, these seven banks are still standing, but they are “zombies” – dead on their feet. 

The magazine quotes a Swiss banking expert saying up to 80,000 banking jobs may be lost in a “dramatic cleansing action”.

Let’s see what reception this article gets in the rest of the media in coming days…

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