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DGAP-News: Silvia Quandt & Cie. AG, Merchant & Investment Banking: In-between the lines - Bernhard Eschweiler (deutsch)

Veröffentlicht am 01.06.2012, 09:44
Aktualisiert 01.06.2012, 09:48
Silvia Quandt & Cie. AG, Merchant & Investment Banking: In-between the lines - Bernhard Eschweiler

DGAP-News: Silvia Quandt & Cie. AG, Merchant & Investment Banking /

Schlagwort(e): Sonstiges/Sonstiges

Silvia Quandt & Cie. AG, Merchant & Investment Banking: In-between the

lines - Bernhard Eschweiler

01.06.2012 / 09:43

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- Cross-border bank lending surged prior to crisis, especially to the US

and PIIGS

- European banks were biggest lenders and are now pulling out everywhere

- Euro-area periphery is hit hardest, while US activity is already

recovering

Financial markets have been choppy over the last two weeks with a clear

downward bias. The ongoing crisis in Europe, especially Greece and Spain,

as well as negative economic news, notably the latest round of flash PMIs

have undermined sentiment. However, there is also hope that China will

boost growth with a new stimulus package and that Greece will make it at

least until the election, thanks to the EUR18 billion bank capital

injections. Overall, we remain optimistic that the global economy will

stay on track. We also expect that Spain will soon have to swallow its

pride and seek bank recapitalization support from the EU and the IMF,

whether direct or indirect. What happens in Greece after the election,

however, is anyone's guess.

Clear is that patience is running out and that the Greeks will have to

decide and then live with the consequences. Less clear is whether Euro

leaders have thought through the consequences should Greece leave. The

risk of market attacks has probably declined, but the risk of deposit

flight in other crisis economies has increased. Large-scale deposit

withdrawals in the periphery are a real threat for the Euro and require

large-scale countermeasures. The ECB has the means to act, but more will

probably be needed, such as deposit guarantees through the ESM. However,

that will require a broader mandate and more funding for the ESM. We can

continue to speculate what will happen, but like to use the remainder of

these two pages to take a look at the BIS international bank lending

statistics, which illustrate the boom and bust of Europe's credit cycle.

Pump, pump, pump . peng!

A key feature of the 10 years prior to the financial crisis was the massive

extension of credit. The buildup of leverage, especially in the US

and Europe, is well

documented. Less researched is the role of cross-border banking. The

quarterly BIS international banking statistics provide fascinating insight

into the development of cross-border lending activities before and after

the financial crisis (see table above).

In the ten years prior to the financial crisis, international claims by BIS

reporting banks increased by about 4.5 times. As a share of global GDP,

cross-border credits nearly tripled between 1999 and 2008. To be sure, the

surge in cross-border banking activity is largely the result of the

globalization in banking. Banks are setting up branches in other

countries, taking deposits and making loans, as well as lending each other

cross border. On the other hand, the globalization of the banking sector

facilitated the build-up of leverage. The largest increases in

cross-border bank lending occurred in the US and Europe, especially the

PIIGS countries. Europe had traditionally a higher level of cross-border

banking activity, due to the role of London as an international banking and

money market center. Nevertheless, the introduction of the Euro seems to

have given cross-border banking activities within the Euro-area a big

boost. For example, more than three quarters of the foreign bank claims in

the PIIGS countries prior to the financial crisis came from European banks.

The regional differences in cross-border credit growth are best illustrated

when compared with GDP. In the US, cross-border credit increased by nearly

40% of GDP between 1999 and 2008. Despite the large increase, total claims

by foreign banks stayed below 50% of GDP. In Europe, especially the PIIGS

countries, cross-border credit increased by about 70% of GDP to reach

levels of 100% of GDP and higher. In the rest of the world, cross-border

credit increased by just 10% of GDP to about a quarter of GDP. What

followed the credit boom is largely history. Nevertheless, there are

interesting regional differences.

- Europe, especially the PIIGS, have been hardest hit. For Europe as a

whole, cross-border bank lending dropped by more than a quarter between

2008 and 2011. Foreign bank claims in the PIIGS plunged by more than

40% (Greece was down nearly 60%) and all evidence suggests that the

decline continues this year. The withdrawal of cross-border bank

lending has been most visible in the interbank market. On a net basis,

more than EUR800 billion were withdrawn from the PIIGS. The resulting

funding gap could only be closed through ECB liquidity operations.

- In the US, claims by foreign banks initially dropped by 20%, but

started to recover a year ago and are now less than 10% below the 2008

peak level. The difference to Europe clearly shows that the US has

managed to restore confidence in the banking sector.

- In the rest of the world, which comprises mostly the emerging markets,

cross-border lending continued to increase after the crisis. Over the

last three years, foreign bank claims rose by 12% and also as a share

of GDP.

Who's turning off the tabs?

The BIS statistics also provide some insight into the origins of the

cross-border bank claims, although with less detail. European banks

have been by far the largest

providers of cross-border loans (more than two thirds of all cross boarder

lending before the crisis). European banks are still the largest foreign

lenders, but their share has declined notably. European banks have reduced

their foreign exposures across all regions, but most severely within

Europe, especially the PIIGS countries. German followed by French banks

have been reducing their exposures the most. The reduced exposure to the

US is probably the result of European banks' bad experience during the

financial crisis. The reduction of loans to the rest of the world,

however, is a sign that many European banks have funding problems and are

forced to reduce even good business activities.

In contrast, US banks have increased their foreign exposure, although from

much lower levels. The increased cross-border lending activity by US banks

is a sign of better health as well as Fed liquidity pushing US banks to

seek higher returns abroad. The rise in US bank lending to Europe is

mainly directed to the UK and the strong Euro members, notably Germany. In

the rest of the world, banks have increased their foreign claims modestly.

Lending to Europe has dropped markedly, but lending to the US has

increased. Cross-border lending within the rest of the world has also

increased, although levels are still low, given the growing importance of

these economies and intra-regional trade as well as the rise of emerging

markets banks. In our judgment, this will change a lot going forward.

Disclaimer

This analysis was prepared by Bernhard Eschweiler, Senior Economic Advisor,

and was first published 1 June 2012, Silvia Quandt Research GmbH,

Grüneburgweg 18, 60322 Frankfurt is responsible for its preparation. German

Regulatory Authority: Bundesanstalt für Finanzdienstleistungsaufsicht

(BaFin), Graurheindorfer Str. 108, 53117 Bonn and Lurgiallee 12, 60439

Frankfurt.

Publication according to article 5 (4) no. 3 of the German Regulation

concerning the analysis of financial instruments (Finanzanalyseverordnung):

Number of recommendations Thereof recommendations for issuers to which

from Silvia Quandt Research investment banking services were provided

during

GmbH in 2012 the preceding twelve months

Buys: 96 37

Neutral: 52 6

Avoid: 11 0

Company disclosures

Article 34b of the German Securities Trading Act (Wertpapierhandelsgesetz)

in combination with the German regulation concerning the analysis of

financial instruments (Finanzanalyseverordnung) requires an enterprise

preparing a securities analysis to point out possible conflicts of interest

with respect to the company or companies that are the subject of the

analysis. A conflict of interest is presumed to exist, in particular, if an

enterprise preparing a security analysis:

(a) holds more than 5 % of the share capital of the company or companies

analysed;

(b) has lead managed or co-lead managed a public offering of the

securities of the company or companies in the previous 12 months;

(c) has provided investment banking services for the company or companies

analysed during the last 12 months for which a compensation has been or

will be paid;

(d) is serving as a liquidity provider for the company's securities by

issuing buy and sell orders;

(e) is party to an agreement with the company or companies that is the

subject of the analysis relating to the production of the recommendation;

(f) or the analyst covering the issue has other significant financial

interests with respect to the company or companies that are the subject of

this analysis, for example holding a seat on the company's boards.

In this respective analysis the following of the above-mentioned conflicts

of interests exist: none

Silvia Quandt Research GmbH, Silvia Quandt & Cie. AG, and its affiliated

companies regularly hold shares of the analysed company or companies in

their trading portfolios. The views expressed in this analysis reflect the

personal views of the analyst about the subject securities or issuers. No

part of the analyst's compensation was, is or will be directly or

indirectly tied to the specific recommendations or views expressed in this

analysis. It has not been determined in advance whether and at what

intervals this report will be updated.

Equity Recommendation Definitions Silvia Quandt Research GmbH analysts rate

the shares of the companies they cover on an absolute basis using a 6 -

12-month target price. 'Buys' assume an upside of more than 10% from the

current price during the following 6 - 12-months. These securities are

expected to out-perform their respective sector indices. Securities with an

expected negative absolute performance of more than 10% and an

under-performance to their respective sector index are rated 'avoids'.

Securities where the current share price is within a 10% range of the

sector performance are rated 'neutral'. Securities prices used in this

report are closing prices of the day before publication unless a different

date is stated. With regard to unlisted securities median market prices are

used based on various important broker sources (OTC-Market).

Disclaimer This publication has been prepared and published by Silvia

Quandt Research GmbH, a subsidiary of Silvia Quandt & Cie. AG. This

publication is intended solely for distribution to professional and

business customers of Silvia Quandt & Cie. AG. It is not intended to be

distributed to private investors or private customers. Any information in

this report is based on data obtained from publicly available information

and sources considered to be reliable, but no representations or guarantees

are made by Silvia Quandt Research GmbH with regard to the accuracy or

completeness of the data or information contained in this report. The

opinions and estimates contained herein constitute our best judgement at

this date and time, and are subject to change without notice. Prior to this

publication, the analysis has not been communicated to the analysed

companies and changed subsequently. This report is for information purposes

only; it is not intended to be and should not be construed as a

recommendation, offer or solicitation to acquire, or dispose of, any of the

securities mentioned in this report. In compliance with statutory and

regulatory provisions, Silvia Quandt & Cie. AG and Silvia Quandt Research

GmbH have set up effective organisational and administrative arrangements

to prevent and avoid possible conflicts of interests in preparing and

transmitting analyses. These include, in particular, inhouse information

barriers (Chinese walls). These information barriers apply to any

information which is not publicly available and to which any of Silvia

Quandt & Cie. AG and Silvia Quandt Research GmbH or its affiliates may have

access from a business relationship with the issuer. For statutory or

contractual reasons, this information may not be used in an analysis of the

securities and is therefore not included in this report. Silvia Quandt &

Cie. AG and Silvia Quandt Research GmbH, its affiliates and/or clients may

conduct or may have conducted transactions for their own account or for the

account of other parties with respect to the securities mentioned in this

report or related investments before the recipient has received this

report. Silvia Quandt & Cie. AG and Silvia Quandt Research GmbH or its

affiliates, its executives, managers and employees may hold shares or

positions, possibly even short sale positions, in securities mentioned in

this report or in related investments. Silvia Quandt & Cie. AG in

particular may provide banking or other advisory services to interested

parties. Neither Silvia Quandt Research GmbH, Silvia Quandt & Cie. AG or

its affiliates nor any of its officers, shareholders or employees accept

any liability for any direct or consequential loss arising from any use of

this publication or its contents. Copyright and database rights protection

exists in this publication and it may not be reproduced, distributed or

published by any person for any purpose without the prior express consent

of Silvia Quandt Research GmbH. All rights reserved. Any investments

referred to herein may involve significant risk, are not necessarily

available in all jurisdictions, may be illiquid and may not be suitable for

all investors. The value of, or income from, any investments referred to

herein may fluctuate and/or be affected by changes in exchange rates. Past

performance is not indicative of future results. Investors should make

their own investment decisions without relying on this publication. Only

investors with sufficient knowledge and experience in financial matters to

evaluate the merits and risks should consider an investment in any issuer

or market discussed herein and other persons should not take any action on

the basis of this publication.

Specific notices of possible conflicts of interest with respect to issuers

or securities forming the subject of this report according to US or English

law: None

This publication is issued in the United Kingdom only to persons described

in Articles 19, 47 and 49 of the Financial Services and Markets Act 2000

(Financial Promotion) Order 2001 and is not intended to be distributed,

directly or indirectly, to any other class of persons (including private

investors). Neither this publication nor any copy of it may be taken or

transmitted into the United States of America or distributed, directly or

indirectly, in the United States of America.

Frankfurt am Main, 01.06.2012

Silvia Quandt Research GmbH

Grüneburgweg 1860322 Frankfurt

Tel: + 49 69 95 92 90 93 -0

Fax: + 49 69 95 92 90 93 - 11



Ende der Corporate News

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01.06.2012 Veröffentlichung einer Corporate News/Finanznachricht,

übermittelt durch die DGAP - ein Unternehmen der EquityStory AG.

Für den Inhalt der Mitteilung ist der Emittent / Herausgeber

verantwortlich.

Die DGAP Distributionsservices umfassen gesetzliche Meldepflichten,

Corporate News/Finanznachrichten und Pressemitteilungen.

Medienarchiv unter http://www.dgap-medientreff.de und

http://www.dgap.de

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