The True Elephant In The Room Appears: Trillions In Commercial And Industrial Loans To Europe's Insolvent Countries

Tyler Durden's picture

With the market's attention over the past year exclusively focused on bank holdings of insolvent European sovereign debt, which as is now well known had been declining for months, many if not all forgot that banks also have credit exposure via far simpler conduits: retail and commercial debt. And as an analysis of the full disclosure in the EBA's second stress test exposes, banks are on the hook for literally trillions in various plain-vanilla commercial and retail loans to individuals and businesses. WSJ's David Enrich summarizes it best: "Friday's test results shed light on another potential problem for Europe's banks: huge piles of residential mortgages, small-business loans, corporate debt and commercial real-estate loans to institutions and individuals from ailing countries. As those economies struggle, the odds of rising defaults grow." Oops.

From the WSJ:

Banks tend to be holding far greater quantities of those commercial and retail loans than they are of sovereign debt, according to a Wall Street Journal analysis of disclosures accompanying the stress tests.

This year's stress tests represent the first time there has been a uniform way to measure this exposure. Until now, banks have disclosed their portfolios of loans to customers in troubled countries on a piecemeal basis. That made it virtually impossible to aggregate data across the industry or to compare different institutions.

"The country-by-country exposure [data] is better than any data we've seen before," said Alastair Ryan, a London-based banking analyst with UBS AG. "It's giving me more things to be fearful of," Mr. Ryan added, referring to the disclosures of some banks' large holdings of loans to customers in troubled countries.

After Spanish and Italian banks, France's banks appear to be the most exposed. As of Dec. 31, its four largest banks—BNP Paribas SA, Crédit Agricole SA, BPCE Group and Société Générale SA—were holding a total of nearly €300 billion, or about $425 billion, in loans and other debt issued to institutions and individuals in Portugal, Ireland, Italy, Greece and Spain, the countries that are among Europe's most troubled. That is largely a result of some of the French banks having big retail- and commercial-banking operations in Greece, Italy and Spain.

The French banks' portfolios of commercial and retail loans in those countries dwarf their holdings of sovereign debt.

For example, the four banks have a total of about €51 billion of loans to Spanish customers, according to the Journal's analysis.

Here is how this latest elephant looks like in chart format:

Germany, so far represented as a stalwart of investment prudence (despite its Landsbanken being decimated and on a constant lifeline by the CDO scammery of our own investment banks back in 2005-2006), is among the most impaired:

The dozen German banks that disclosed their stress-test results were exposed to €174 billion of commercial and retail loans to Greek, Irish, Italian, Portuguese and Spanish borrowers as of Dec. 31. They are holding an additional €70 billion of sovereign debt issued by those countries, according to SNL.

More than half of the German banks' loan exposures are concentrated in the country's two biggest lenders, Deutsche Bank AG and Commerzbank AG. Deutsche Bank alone is holding nearly €80 billion of loans in those countries, including €7.5 billion of residential mortgages in Spain. Deutsche, which passed the stress tests with a 6.5% capital ratio under the EBA's worst-case scenario, said Friday that it "feels well prepared" to hit its capital targets.

Naturally, it is no secret that the second Stress Test was nothing but another attempt at redirection:

While the tests did consider the impact of an economic downturn on banks' portfolios of loans and nonsovereign debt in Portugal, Ireland, Italy, Greece and Spain, many critics complained that the tests were overly benign. For example, the EBA's worst-case scenario for Portugal envisioned an 11.6% unemployment rate this year, rising to 12.9% in 2011. The unemployment rate there is currently 12.4%.

The stress-test figures actually understate some banks' holdings of loans in certain troubled countries. That is because the European Banking Authority required banks to disclose their loan holdings in countries only if they represent more than 5% of the bank's total loan exposures.

As a result, some banks opted not to disclose details of their loan portfolios.

Once again, just like in the case of Spain's LaMancha region lying outright about its deficit, "out of left field" discoveries such as this will keep reappearing until the full kit and caboodle of tens of trillions in impaired exposure finally hits the market. Of course, at that point nothing, not even the Fed's unlimited FX swap lines will do much if anything to help.

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km4's picture

And the Bernank says I've got your back because I can print. 

David Stockman: I think the Fed is injecting high grade monetary heroin into the financial system of the world, and one of these days it is going to kill the patient."


pesamystik's picture

On another note, you have to love how Goldman Sachs is now advertising on ZeroHedge.

Is it time to short ZeroHedge?

Atomizer's picture

Clear your computer cookies & cache moron. Crap cleaner program will do the job.


Dr. Richard Head's picture

When dealing with questions like that I have found that it is better to use analogies that relate to the level of the question asked.

For instance, I would thing this analogy would be appropriate. "I would recommend clearing out your browser as if you were about to hand over your computer to you wife."

Today's "Advice During Your Backswing Moment" brought to you by Dr. Richard Head. You didn't ask, but he will tell you anyway.

doggings's picture

I dont think they'd take payment in butthole paper

j0nx's picture

I'll do my part and take a hot Greek woman for $10. I hear they love it in the pooper. Hell, sign me up for two!

dearth vader's picture

Don't! Beware of the tail risk.

theopco's picture

I realize that this is far past the time when anyone is still reading this thread, but what exactly would that accomplish? If you don't want to see adds then block them. As to Gollum Sucks advertising on ZH, I'm pretty sure that's automated, and I'm even more sure that it has no bearing (unlike the MSM) on editorial decisions.

Oh, and it's pretty pathetic to call someone a moron when you yourself don't know what the fuck you're talking about.

ping's picture

Yeah, that 'moron' comment was crass and ill-informed. Save the insults for people who say something worth insulting. 

ping's picture

<Panics> ...but not me! I have insight in all things

Dre4dwolf's picture

The Goldman adverts is probably due to re-targeting marketing tech, you probably visited a goldman sight/browsed them and now the internet thinks you want to buy junk from them.... so they spam you with adverts...

A lot of adverts / banners on the internet now spam you with products you browsed (they save a history of products and the browser looksup products and spams them to you)

Ie: if you looked at a Tv screen the other day on an electronics website and you visit youtube, on the side youtube will spam you with the exact Tv set you were looking at the other day.... its the latest and greatest in marketing.

Prometheus418's picture

Just for shits and grins, I turned off adblock for a minute and hit reload a couple of times.

I was offered a new dodge, gold, silver, a cure for cancer, and a private jet.  Don't recall looking for any of those beyond the gold and silver, but I guess they assumed I have money I wanted to spend.

Seriously folks- why look at it?  It only takes about 30 seconds to download AdBlock, and it works well. 

MsCreant's picture

Clicking the ads brings income to the owners of the site. They pay their bills on this stuff. Added bonus-- if you hate the advertiser, click it a whole lot. You put them in the position of having to pay for those clicks and you didn't buy shit! 


TheFourthStooge-ing's picture

As long as the economies of every country in the world continue to expand in perpetuity, there's no problem.

What could possibly go wrong?


sitenine's picture

Indeed.  Not like peak anything actually exists right?

Funny how we're convinced that we're immortal until we learn that we're not isn't it?

Oh regional Indian's picture

Sitenine, I think it's Peak Death that will prove the peak theory of anything/everything.

Two Little 2 late though. Typical for the species.



baby_BLYTHE's picture

The is debt ceiling debate is a total joke and complete waste of time.
The path chosen in 2008 ensures the dollar's total collape within this decade.

Never, not one single time in world history, has printing money ever fixed a broken economy.

Our "central planners" have set everyone of us up for some extremely difficult times within the next couple of years. The transition of the United States dollar from reserve currency status will be an immense economic depression for several years as malinvestments are liquidated and global wage arbitrage Is reconciled

TheFourthStooge-ing's picture

Don't worry, they will fix everything. They always do.

I'll just watch some more television, and everything will be fine.


Vic Vinegar's picture

Somebody needs to give you a thumbs-up for your user ID.  It's awesome.

All I care about now is how clubbing went for baby_Blythe last night.

TheFourthStooge-ing's picture

All I care about now is how clubbing went for baby_Blythe last night.

Seal clubbing?


Vic Vinegar's picture

So since none of what you wrote here baby is news to us, let us know how was clubbing last night?  Did you have a good time?

baby_BLYTHE's picture

I don't see what the big deal is here, don't you go out with friends at least once a week?

As insane as the world has been the last several years, I force myself to interact socially with friends or other people, at the very least, once a week.

MsCreant's picture

Vic wants details, details.

Was there anyone special? 

Vic Vinegar's picture


At this stage of the game, I would suggest that baby procreate with Max Keiser.  Clearly that guy has trouble with women and doing so would help there to be more good guys in the world.

However, since we know so much about baby I doubt that would fly.  Because that would make their offspring:

  • 25% Finnish
  • 12.5% Polish
  • 12.5% German
  • 50% "dirty heeb"

Mr Lennon Hendrix's picture

Yeah!  What?  Stacey Herbert is one of the sexiest women on TV.  Max is a lucky dude.

Sock Puppet's picture

Vic are you a chick with a dick?

Mr Lennon Hendrix's picture

We're going clubbing?  I am going to need to shower; haven't done that today.

Things that go bump's picture

Only babies can do that, dear, and the men are naturally intrigued.  The rest of us are too tired.  

Dugald's picture

And that means?....The Wests wages structure equals china???

bigwavedave's picture

high grade H is going to skyrocket in price once the USA starts pulling out of Afghanistan. So... that would be inflationary I guess.

TheFourthStooge-ing's picture

high grade H is going to skyrocket in price once the USA starts pulling out of Afghanistan.

Hedonics implies that shooting smack can be replaced with huffing gasoline. Let's hope that the price of gasoline doesn't skyrocket, because the hedonic substitution for gas huffing is entering politics.


Juice Box's picture

That is why the NFL lockout will end soon - Americans need their opiates to get through this shitty year!

theopco's picture

wrong- deflationary. lol.

Bindar Dundat's picture

Let's kill the dealers!

erg's picture

Thanks always for the new posts Tyler. I hate to start a new thread OT

but I have a lingering question. I've seen the odd complaint about the captcha.

Namely if I recall, it doesn't accept negative numbers though the answer requires it.

Another from months ago is that you can bypass it by doing something I forget.

Regardless, I've yet to see a captcha at all. Anyone know why?

Hulk's picture

This and how many licks it takes to get to the center of a tootsie roll pop, the world may never know...

erg's picture

Thanks for the response Hulk.

Hulk's picture

Its always been like that. Just click through the damn thing a second time and it works...

Atomizer's picture

In our world, 2+2= 4. 

erg's picture

As a result, some banks opted not to disclose details of their loan portfolios.


It's like a shell game with an octopus on purple mike.

TheFourthStooge-ing's picture

It's like a shell game with an octopus on purple mike.

...along with some Goofy® blotter, jimsonweed, a few sherman sticks, and a barrel of swish.


Prometheus418's picture

Quiet boys, you're making me hungry.

disabledvet's picture

My guess would be "buck breaking" at the MMF's. The Fed has been screwing cash since day one and it's time to Pay the Piper. The commercial paper market has been shit since the collapse--and Every Business Inc. has run like boyz to the bubble gum shop straight to the junk debt bazaar to lock in the yields. The actual amounts be lent out however appear to me to be shrinking dramatically so I agree: the banks are putting their protective armour on here. "All banks are not created equal" however. "Some banks are more equal than others" as we all now know. Speaking of Animal Farm how about something on the lighter side: