Word: bankses
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Paul Schulte, a former Lehman Brothers star analyst who is now with Japan's Nomura (which took over bankrupt Lehman's Asian operations), recently compared bank balance sheets in various countries and discovered significant differences. One telling disparity is leverage. The higher the leverage, the greater the risk, and despite...
To determine leverage, Schulte divided U.S. banks' tangible assets (that is, assets, including loans, minus intangibles such as goodwill) by their tangible capital (the book value of capital minus intangibles). He got a ratio of 24.8. This is a worrying multiple: the leverage of U.S. banks in 1993, years before...
Europe's banks are in much worse shape, with a ratio of 40.5. They must either sell $9.7 trillion in assets or raise $485 billion in capital to bring leverage down to 20. The Royal Bank of Scotland (estimated leverage: 39.3) has already started slimming down. It recently put its...
Who has the money to buy them? Nomura found that Asia's banks are significantly underleveraged, meaning they have plenty of muscle for acquisitions. China's leverage ratio is 15.8, Hong Kong's is 14.3, India's is 11.6, South Korea's is 16.7. Having gone through rehab after the...
But just because you can afford to buy doesn't mean you will - or should. China's banks are still grappling with internal and external issues, including a shallow talent pool, a shortage of managerial expertise and a local currency that is not convertible, which makes it cumbersome to mobilize...