European Credit Markets_Duetsche Bank

This was posted on Seeking Alpha and I think it is a good data point on what may be happening/deteriorating over there... I am going to go dig up one of John Mauldin's letters where he discusses European banks and post that as well.

Bottom line: I don't think we have fully made it through the credit crisis yet. I think banks are going to turn into black holes again... and this time they may nor be able to raise the needed capital.

The take away from the Deutsche Bank earnings release seems to be the much larger than expected bolstering of loan loss reserves. The company increased its provisions for credit losses to 1 billion euro, up nearly 700% from the level last year of 135 million euro. The total amount of cushion against soured loans was 36% greater than the consensus analysts estimates for the reserve of 634 million. This projects a couple of things to the market that are scaring investors. First, this suggests that the credit situation in Europe may be more risky than the analysts had thought with the bank’s drastic increase in reserves. The bank reported that problem loans doubled in this quarter from a year ago, tallying more than 8 billion euros in loan amount. Secondly, the bank is sending a cautious signal rather than an aggressive one, as the company is storing more capital away for a rainy day instead of actively trying to place in a venture with growth potential.