Market Insider Trader Talk with Bob Pisani


  Thursday, 15 Sep 2011 | 4:23 PM ET

European Banks vs. US Banks: Big Differences

Posted ByBob Pisani

The announcement of coordinated central bank action to provide support for European banks needing access to dollar -based loans highlight a very key difference between European and U.S. banks: European banks are far more reliant on short-term borrowing to fund their operations than U.S. banks.

Why is this true? Banks get money to make loans and fund operations in two ways: from depositors, or by going out and borrowing.

There is intense competition for depositor money in Europe, for a couple of reasons: 1) there are many more banks, and thus more competition for deposits, and 2) there are outside-bank competitors for deposits.

In many countries, the national Post Office can accept deposits. That's right: in many European countries you can have an account with a Post Office. They are competitors to banks.

As a result, European banks fund much of their operations by borrowing. The loan-to-deposit ratio of most European banks is far above that of its U.S. rivals.

According to analyst Mark Palmer at BTIG, U.S. banks such as JPMorgan and Wells Fargo have loan-to-deposit ratios of 66 and 88 percent, respectively.

Just look at the loan-to-deposit ratios of some of these European banks:

Dexia 281%

Danske 209%

Lloyds 155%

Santander 127%

Barclays 118%

Societe Generale 110%

UBS 82%

Source: BTIG

As you can see, these are far higher levels than most American banks, with the exception of UBS. How can they lend out far more than their deposits? They borrow, in the short-term money market.

And that's the problem — this market is increasingly closed to them. In particularly, many use short-term loans provided by U.S. money market funds, but those money market funds have been pulling back because of concerns over solvency in European banks.

That's what today's action was designed to forestall: central banks are stepping in and allowing European banks access to three-month dollar loans to help them get through this "liquidity" crisis (which is really a solvency crisis).

It gets more complicated: dollar liquidity is only one part of the overall funding issue. The problem is short-term funding in general, not just funding from dollar sources.

According to Palmer, Societe Generale, for example, needs 22 billion euros in U.S. dollar funding (this is mostly from money market funds), but have total short-term funding needs in the next year of 148 billion euros. Where does the rest of the funding come from? From other sources in Asia and Europe, including interbank lending. But these sources, including Asia, are starting to get nervous about supplying funding as well.

What's going to happen? The first thing is, expect banks to sell assets and announce layoffs. We're already seeing that.

What about raising capital? Very tough right now, particularly with stock prices the way they are. Preferreds? You'd have to pay a very high dividend to do that.

What else? Lower levels of lending are likely, which puts a squeeze on economic growth. Ultimately, we get back to the end game: eurobonds, or expanding the EFSF into a EuroTARP, which can be used to recapitalize the banks.

But the Germans don't want to allow a supranational agency to tax them without holding it accountable. Palmer, George Soros, and many other believe the only way out is if the northern European politicians can convince their citizenry that their own way of life will be imperiled if the euro collapses.

Bookmark CNBC Data Pages:


Want updates whenever a Trader Talk blog is filed? Follow me on Twitter: twitter.com/BobPisani.

Questions? Comments? tradertalk@cnbc.com

»Read more
  Thursday, 15 Sep 2011 | 2:51 PM ET

Options Business Is Booming

Posted ByBob Pisani
While the trading since August have been full of volatility and high volume, for the most part that has not translated into notable stock outperformance for the major exchanges. There is an exception: the CBOE. »Read more
  Thursday, 15 Sep 2011 | 9:38 AM ET

'I'm Running the Lightest Portfolio of My Life': Trader

Posted ByBob Pisani
"I'm running the lightest portfolio of my life, and I'm delighted about it," one trader told me this morning, sheepishly admitting he is 70 percent in cash. With a pile of puts. »Read more
  Wednesday, 14 Sep 2011 | 3:56 PM ET

What's Next for Europe?

Posted ByBob Pisani
Traders are trying now to connect the dots on two pieces of information. »Read more
  Wednesday, 14 Sep 2011 | 2:55 PM ET

Markets Lift as Greek Aid Looks Likely

Posted ByBob Pisani
Stocks have moved to their highs for the day, as the Greek government has said, "All agreed Greece will remain in the eurozone" and "Greece PM vows to take all necessary measures on budget commitments." »Read more
  Wednesday, 14 Sep 2011 | 2:04 PM ET

Greece, Germany and France in 'Dr. Strangelove' Conference Call

Posted ByBob Pisani
The trading community is atwitter about the phone conversation that will be taking place between the Greek Prime Minister George Papandreou, Angela Merkel of Germany, and Nicolas Sarkozy of France. »Read more
  Wednesday, 14 Sep 2011 | 11:26 AM ET

EFSF Bailout Fund Vote a 'Horror Show'

Posted ByBob Pisani
"We have to do this vote with 17 countries? How can you go home with stock overnight?" That's what one trader said to me, after Austria said it would delay voting on changes to the EFSF bailout fund until October. »Read more
  Wednesday, 14 Sep 2011 | 10:41 AM ET

Pisani: Leaders Bring Insight on Debt Crisis

Posted ByBob Pisani
Many interesting comments on the global debt crisis this morning: Treasury Secretary Timothy Geithner told CNBC at our "Delivering Alpha" conference in New York there was "not a chance" that Europe will allow their institutions fail in the way Lehman Brothers did. »Read more
  Tuesday, 13 Sep 2011 | 4:49 PM ET

Will UPS Follow Cummins?

Posted ByBob Pisani
While most of UPS revenues are in the U.S. (about 75 percent), the health of their international package business (about 22 percent of revenues) is considered a key barometer of global shipping demand. »Read more
  Tuesday, 13 Sep 2011 | 3:39 PM ET

Is the IEA Front-Running the IMF?

Posted ByBob Pisani
European debt issues haven't gone away, but they can be ignored — for a day or two. Here's something odd: S&P Industrials up almost 2 percent, and S&P Materials up 1.6 percent, but S&P Energy up less than 0.5 percent. »Read more

About Trader Talk

  • Direct from the floor of the NYSE, Trader Talk with Bob Pisani provides a dynamic look at the reasons for the day’s actions on Wall Street. If you want to go beyond the latest numbers— Bob will tell you why the market does what it does and what it means for the next day’s trading.


  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

Wall Street