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Banks in Europe Face Huge Losses

From GreeceBYLANDON THOMAS JR.Europes biggest banks may finally be forced to own up to theirlosses.

While bank executives and government leaders have been reluctant to acknowledge that thehundreds of billions of euros of Greek debt held by financial institutions is worth far less than itsface value, they are slowly accepting the grim reality, as investors, clients and lenders growincreasingly wary.

On Tuesday,Deutsche Banksaid it would not meet its profit goals for the year, citing investoruncertainty and losses on Greek bond holdings. Government officials are debating dismantling

Dexia, the large French-Belgian bank, and warehousing its troubled assets in a bad bank.

The latest woes prompted a broad market sell-off in Europe, hitting banks in France andGermany particularly hard. Wall Street, dragged down early by the problems on the Continent,lifted at the close, after reports that European financial officials were considering ways to shoreup the industry.

As Europes debt crisis continues to fester, financial firms exposed to troubled sovereign debtface a brutal fallout.

Weaker banks are moving closer to the embrace of their governments. Shares of Dexiawhich

held more than 21 billion euros of Greek, Italian, Spanish and Portuguese bonds at the end of lastyearcollapsed in recent days. The situation led the Belgian and French governments, threeyears after originally bailing out Dexia, to guarantee the banks future financing needs.

For stronger banks like Deutsche Bank, the biggest in Germany, the pressure is building to cutcosts and raise capital. On Tuesday, Deutsche said that it could no longer meet its 2011 profittarget of 10 billion euros, or $13.3 billion. The bank said it would take a loss of 250 millioneuros on its Greek debt and cut 500 investment banking jobs, most of them outside Germany.

By the numbers, a write-down on Greek debt should be affordable. Some banks have alreadymarked down their holdings to market prices. But several of the biggest holders, includingDexia,Socit Gnrale,BNP Paribasand two German-owned state banks, have resisted

admitting that their Greek bonds are worth, at best, 50 percent of their face value. Dexia has 3.4billion euros on its books while Deutsche Bank holds 1.1 billion euros.

European policy makers are fearful of pushing Greece into default. Regulators want to wait untilthey can erect a firewall around Italian and Spanish debt and protect the European banks holdingthe bonds on their balance sheets at near or face value.

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Once you take a write-down on Greek debt for Dexia, this has systemic implications for theFrench and German banks, said Karel Lannoo, the chief executive of the Center for EuropeanPolicy Studies in Brussels. Dexia may be one of the worst-off banks, he said, but the issue is thesame for all banksit will be the taxpayer that pays for this.

European policy makers remain deeply divided on how to deal with the shaky banks.

The French government supports an exchange between Greece and bankers, which wasnegotiated in July as part of a second bailout for Athens.

But Germany has increasingly pushed for the banks to contribute a larger share of Greecesgrowing bailout bill. Officials at the German finance ministry argue that the most efficient wayto do this is for banks to take a 50 percent loss on their Greek bonds.

Since the private sector deal was forged in July, the prices of Greek bonds in secondary marketshave plunged to about 36 percent of face value, from 75 percent. That has put additional pressureon European policy makers to change the terms of the deal. On Monday, Jean-Claude Juncker,

the prime minister of Luxembourg, who leads a permanent working group of euro zone financeministers, cited the changing market conditions and added that Europe was discussing technical

revisions to the exchange.

Analysts point out that the cost of this private sector initiative has increased significantly. Asoriginally planned, Greece was supposed to borrow 35 billion euros to buy the AAA bondsneeded to back the new securities created for the debt swap.

But the global rally in high-quality debt has made the bonds pricier. People involved in the dealnow say that Greece may need to borrow an extra 12 billion euros.

While the question remains whether taxpayers or financial firms will make up the difference,European authorities may be moving closer to a coordinated effort on the banks.

Olli Rehn, the European commissioner for economic affairs, told The Financial Times onTuesday that banks capital positions must be reinforced to provide additional safety margins

and thus reduce uncertainty. He said there was a sense of urgency, acknowledging thatofficials were discussing measures to bolster the banks.

Mr. Rehns reported comments appear to be at odds with those of his colleague,Michel Barnier,the European commissioner responsible for financial services. On Tuesday, after a meetingofEuropean Unionfinance ministers in Luxembourg, Mr. Barnier said that although bankrecapitalization was proceeding, there was no need for new measures.

A growing number of economists, and some voices within theInternational Monetary Fund,argue that banks need to formally acknowledge their losses to restore their credibility.

It is difficult to see how Greece gets out of this without a write-down of its debt, said a seniorI.M.F. official who refused to be identified because he was not authorized to speak publicly onthe sensitive issue.

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COMENTARIO

Debido a la crisis en la que se encuentra Europa, muchos bancos que son

relativamente dbiles y no pueden afrontar las prdidas que ha generado Grecia

estn sufriendo por el momento y lo mas probable es que terminaran cerrados

porque no se puede financiar las deudas, tambin en relacin a los bancos que

estn sosteniendo la crisis como el banco Deutsche de Alemania que tendr que

despedir a 500 empleados y una prdida de 250 millones de euros