Forget Greece: 10 Not-So-Fun-Facts About German Banks

by: The Ox

1. German banks are perhaps the most leveraged in the developed world- far more so than any of the so called PIIGS countries. The graph below is based on data from the IMF Global Financial Stability Report and was created by The IMF defines leverage as tangible assets to tangible common equity."

2. In the 2010 stress tests of European banks, 6 of the 14 German Banks tested declined to publish the expected detailed breakdown of their sovereign debt holdings. The only other European bank to shirk this disclosure was Greece’s ATE bank, which ended up failing the test.

3. According to John Mauldin, his sources tell him “many of the state-owned German Landesbanks are essentially insolvent, with massive amounts of sovereign debt.”

4. Landesbanks are a group of state owned banks – they account for about 20% of German bank assets. Competitors of Landesbanks complain that the Landesbanks have an unfair advantage over commercial banks because they can raise money at a cheaper rate, due to their implicit government backing. Kind of like people used to complain about Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC).

5. In May 2011, Germany’s financial regulator, BaFin banned naked shorts against several large German banks, insurance companies, and reinsurance firms.

6. In April 2009, a German newspaper published a leaked list from BaFin that showed German banks had approximately 816 billion euros in toxic assets, about twice what was generally assumed prior to then. German Finance Minister Peer Steinbrueck told Reuters that it was “regrettable" that the list was publicized. Steinbruek said the leak was "not funny.”

7. The German Bank Restructuring Act, which was passed in November, makes it less likely that German taxpayers will have to bail out bondholders with Tier 2 seniority. Moody’s responded to the rule change by downgrading the subordinated debt of 23 German banks.

8. Ben Bernake stated last week that US money market funds had substantial exposure to core European banks. “A disorderly Greek default would have significant effects on the US” economy, according to the Federal Reserve Chairman.

9. The Euribor rate, which approximates the average interest rate banks offer to lend unsecured funds to each other, has been steadily rising since the Spring of 2010 and has more than doubled since then.

10. As the chart below illustrates, the iShares MSCI Europe Financials Index ETF, EUFN is close to having its 50 day moving average cross below its 200 day moving average. At Ox Mountain, our extensive research indicates it’s generally a good idea to exit an ETF when the 50-200 downward cross occurs.
(Click to enlarge)

For a summary of which other ETFs are gaining or losing momentum this week, please go here.

To see how following a long term moving average strategy can possibly increase your risk-adjusted returns considerably, please go here.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.