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The Putrid Smell Suddenly Emanating From European Banks


testosteronepit.com / By Wolf Richter / February 1, 2013

By now we should have gotten used to the odor emanating from banks—bailouts, money laundering, Libor rate-rigging, the other misdeeds. But in Europe over the last few days, it was particularly dense.

A nauseating whiff came from Barclays today, when it leaked out that it has been under investigation by the Financial Services Authority and the Serious Fraud Office in Britain for illegal fundraising in 2008. Allegedly, the bank secretly loaned £5.3 billion ($8.4 billion) to one of Qatar’s sovereign wealth funds, which then turned around and with great public fanfare pumped that money back into Barclays—a scheme to raise capital on paper to escape a government takeover during the financial crisis.

Then Crédit Agricole, France’s third largest bank, announced €3.8 billion ($5 billion) in write-downs, mostly of “Goodwill” due to the “present macro-economic and financial environment.” Goodwill reflects money paid out for certain items in excess of their value—an expense that, by a quirk of accounting, is temporarily parked as an asset on the balance sheet to be expensed eventually. After the write-off, the bank will still have about €14 billion of Goodwill clogging up its balance sheet, and more write-offs are to come. It already wrote off €2.5 billion last year, when it agreed to sell its stake in the Greek bank Emporiki for €1, which it had acquired with impeccable timing in 2006 for €2.2 billion.

Greek banks… oh my! They’re being investigated by Greek financial crime prosecutors for €232 million in loans that they handed out to the ruling parties, Prime Minister Antonis Samaras’ New Democracy and the Socialist PASOK. “Suspected crimes against the state,” a court official called it.

The state funds political parties based on their share of the vote, and both parties pledged hoped-for state funding as collateral for these loans. But during the election last June, New Democracy’s share of the vote dropped from 33% to 29% and PASOK’s from 43% to 12%. With it, state funding suddenly collapsed, and some of the loans are turning sour.

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