It’s Not Just European Governments That Will Be Crushed By Debt Maturities, Banks Need $1.65 Trillion Very Soon
Vincent Fernando, CFA
Jul. 11, 2010
Here’s why Europe’s financial sector is in far more trouble than America’s right now.
European banks have a good $1.65 trillion of debt they need to roll over from 2010 – 2011, which is many times more than U.S. banks have to deal with, as shown by the Wall Street Journal graphic to the right. Note the difference between the light blue and red bars for each year.
As investors fret about European banks’ exposures to Greece and other financially troubled countries, those banks’ borrowing costs are rising sharply. That wouldn’t be a problem if they didn’t need to borrow, but as it happens they need to borrow quite a lot: This year and next, some $1.7 trillion in euro-area bank debt will come due, far more than among banks in the U.S., the U.K. or elsewhere.
If banks are forced to renew those borrowings at high interest rates, the resulting debt-service costs will make it still more difficult for them to earn their way out of their troubles. If they choose not to refinance, they’ll have to sell assets and cut back on lending — anathema to European economies still struggling to recover.
Thus it’s not just European government debts that have a wave of debt maturities to deal with, the banks do too, and the chart above is a key reason why Europe’s debt problems are of a far more near-term nature than America’s.