European Versus US Bank Leverage
Posted on September 28th, 2008 in Finance Stuff | 12 Comments »
There’s a lot of talk about leverage so here’s a comparison of assets versus equity. Assets are from end of financial year, and they don’t account for any deleverage or merger activity, such as JPMorgan and Bear Stearns. Equity is, I believe, up to date and includes rights issues, etcetera…
| Bank | Assets | Shareholder Equity | Ratio |
| Bank of America Citigroup JPMorgan Wells Fargo |
$1,715B $2,187B $1,562B $575B |
$146.8B $113.6B $123.2B $47.6B |
11.7X 19.2X 12.7X 12.0X |
Note the three big US banks have balance sheets that represent 40% of US GDP. Now let’s take a look at European banks.
| Bank | Assets | Shareholder Equity | Ratio |
| Deutsche Bank UBS Credit Suisse Fortis Dexia BNP Paribas Barclays RBS |
€2,020B Fr2,272B Fr1,360B €871B €604B €1,694B £1,227B £1,990B |
€38.5B Fr42.5B Fr59.88B €34.28B €16.4B €59.4B £32.5B £91.48B |
52.0X 53.4X 22.7X 25.5X 36.8X 28.5X 37.8X 21.7X |
Clearly leverage levels in Europe and the UK are markedly higher. More staggering is the size of the balance sheets. Deutsche Bank’s is almost as big as those of Bank of America and JPMorgan combined. And yet, amazingly, the bailout and other US actions make the current situation look like it’s a US problem.
12 Responses
[...] Investing articles and resources for the wise investor | Investing 101 wrote an interesting post today, here’s a quick excerpt[...]
Fortis bailed out today (September 29, 2008)…
Where did you get this figures? I want to look up some banks.
Financial statements, current market prices, etcetera…
[...] Center for European Policy Studies (CEPS) wurden in den letzten Tagen z.T. Horrormeldungen (hier oder hier) über den Zustand der europäische Banken gemeldet. Die Leverage Ratio scheint bei [...]
[...] top US banks are not overly leveraged, especially considering their European counterparts. This fellow here has listed the top banks by assets governed in the USA and Europe and their leverage ratio. [...]
There seems to be a difference in the accounting standards: Europe uses IFRS and America GAAP. Until 2006 international banks were required to do both. In 2006 Deutsche Bank had a leverage ratio of 50.5 when taking the IFRS figures, when taking the GAAP figures it had “only” 33.1. UBS had 48.2 with IFRS and 40.8 with the GAAP figures.
That is true, Europe and the States do have different standards, so maybe it is a bit of an apples and oranges thing. Or, at least oranges and tangerines! It remains, however, the leverage of European banks is far in excess of that maintained by their US counterparts.
I wanted to add that RBS, down the bottom of the European leverage list, has seen its stock drop a whopping 39% today alone! Dexia is also up the creek, with its market capitalization down around 41.5% since the close of September 26.
Octavio.
Os bancos europeus estao muito mais alavancados que os americanos.
Abs.
Gilson.
[...] all manner of sources. The Flitzebogen bow and arrow game as well as a post I put up about bank leverage have by far been the most popular posts on the site, I can understand wasting some serious time on [...]
It would be worth looking at the amount of off balance sheet activity, if reliable (any) figures could be ascertained. And assisted the banks in setting up off balance sheet entities, directly after Enron and Sarbanes-Oxley decreed that there should be no off balance sheets any more… so much for that. Think large firm consultants, providing lucrative consulting advice that, too was supposedly banned by SOX. The very heart of finance, the banking industry, has blown a bullet through SOX (SOX was intended to restore trust, does anyone remember that?)
Interesting certainly, as authorities tell us “everyting is OK” with European banks. Stress tests show “no problem” they say.
The thing I am curious about is are the assets of the European banks valued according to market value or according to old optimistic figures of the banks themselves..? Considering the recent drops this should be of interest.
Another thing one ponders upon is how the European banks will be effected the day the Federal Reserve is bancrupt and the USD finally crasches ?