The largest European banks by assets

According to CNBC, the European Union will stress-test its 25 largest banks in much the same way as the US has done. There has been considerable wrangling on whether the results of the stress tests will be publicly available on a per-institution basis. The latest I have heard is that all countries are onboard with releasing stress test results for all individual institutions tested.

Therefore, I have compiled four lists of banks below.

1. The first is a list of the largest Eurozone banks by assets according to data I compiled via the Forbes Global 2000 list. This excludes non-Eurozone banks from nations like the UK or Denmark but includes ING Groep as a bank.
2. The second is the same list but also including the non-Eurozone banks.
3. The third list is a list of the largest European banks by assets would include any Swiss, Russian, Norwegian or other European banks.
4. Finally, the fourth list is just a global list as a reference point on size. The list now includes all of the too-big-to-fail US institutions.

A few comments first.

Undercapitalised Europe

The Eurozone banks are less well-capitalised than US banks. If you recall, last year I went through this exercise (see The top 25 European banks by assets) because of an article in the Telegraph which indicated that European banks were sitting on 16.3 trillion in toxic assets. I expect that many of the toxic assets that were on European bank balance sheets in February 2009 are still on their balance sheets at cost i.e. without having been written down. This is why I think the European banks are undercapitalized and why the stress tests are happening.

In alarmist early 2009 posts like Switzerland threatened with bankruptcy, German banks loaded with 816 billion in toxic paper or The European problem, the genesis of my alarm was the interconnectedness and undercapitalisation of the European banking system. I first wrote about this before Lehman and the panic of 2008 (see my June 2008 post European banks: still undercapitalised). So, it’s not as if the undercapitalisation meme appeared on the scene due to the panic and drop in asset values. And these are the same issues today, two years later. We are talking solvency – not liquidity – in Europe as we are in the US.

Stress Tests

As for stress tests, I think they are of dubious value. However, in a November post I presented both sides of the argument on the US Treasury’s handling of the credit crisis – with the stress test and liquidity/solvency issues front and centre:

• The wildly optimistic view of Treasury’s handling of the crisis
• The less optimistic view of Treasury’s handling of the crisis

Note the following about the US tests:

Of course the stress tests were a sham. They were a confidence trick to raise more capital and buy time for the banks to earn yet more still. The point was to allow the banks to ease into their losses. And that’s exactly what’s been happening for the past year.

–The fake stress tests and the coming wave of second mortgage writedowns

So, if the European stress tests are equally ‘successful,’ the European bank liquidity crisis will fade and we will see banks raising much needed debt and equity capital in the market instead of having the government inject capital.

The view of the stress tests I presented in March is still operative:

If I had to summarize these thoughts I would say the stress tests were a mock exercise to instil confidence in the capital markets. This was important first and foremost because it would induce private investors to pay for bank recapitalization instead of taxpayers. But it was also important for the economy as a whole as the sick banking sector was dragging the whole economy down. The key, however, is that the tests were a mock exercise. Despite the additional capital, banks are still hiding hundreds of billions of dollars in losses in level three, hold to maturity, and off balance sheet asset pools. If asset prices fall and/or the economy weakens, all of this subterfuge would be for nought.

–Geithner: jusqu’ici tout va bien

The same issues are at play in Europe. If recovery continues, I fully expect the biggest and best capitalized to escape trouble and be home free. This is important as many of them are too big to bail. However, if recovery fades and asset prices fall again, we are in big trouble across the board. And you should expect bankruptcies and bailouts all around – just a warning.

Top 40 Eurozone Banks By Assets

Top 40 EU Banks By Assets

Top 40 European Banks By Assets

Top 40 Banks in the World By Assets

*Note: This list includes all banks and diversified financial institutions that are privately-held i.e. not owned exclusively by government. So, it excludes the German Landesbanks and the Spanish Cajas but it includes the likes of RBS and Lloyds. It excludes insurance companies except ING (because of its significant banking operations). It excludes Berkshire Hathaway (an insurance company) which is listed as a diversified financial but includes Fannie Mae and Freddie Mac which are also listed as diversified financials.