Who's going to be the next Washington Mutual/Fortis/B&B?

September 29, 2008 3:31 AM

How can I keep track of the health of European banks?

I've got some of my retirement money spread around in banks in Spain, France, and the UK. I'm looking for indicators that help me understand whether my banks are getting in trouble.

Can you give me any Web resources to keep track of which banks are on government watch lists, what the current CDS spreads are, who's got a lot of toxic debt, or any other useful information? Bonus points if you can explain what the indicators mean.

posted by fuzz to Work & Money (4 answers total)

Best answer: Ok, some of that data's gonna be somewhat harder to come by than in The United States, for a few reasons.

First, because in The Euro Zone in country is still responsible for a large amount of local region regulatory activity (e.g., BOE taking care of Nationwide, Bradford and Bingley in England, The Belgian Central Bank for Fortis, etc). While presently there are Euro Zone wide regulatory initiatives such as Markets in Financial Instruments Directive (aka MFID) or Basel II, they don't encompass Credit Default Swaps, at least not in terms of pricing.

Second, the CDS market is dealer to dealer, over the counter, as there isn't a centralised exchange or source of data. Firms that collect such information sell (e.g. Bloomberg or MarkIt) it on to interested parties (banks, hedge funds, Universities and people like yourself) so its not possible to get as much for free as we'd like. I do have a source, we've compared it to a couple sources of pay-for data, and while it seems fairly solid, please don't use this information in isolation for trading decisions (which is true of pretty much any market data, by the way, exchange traded was well).

So while single name data will be tough to readily come by, there are Credit Default Swap indices which will give us an indication of the overall state of the market. These are perfectly analogous to stock indices such as The S&P 500 (an average comprised of data from 500 companies), or The Dow Jones Industrial (an average of the prices of 30 stocks).

In Europe the widely watch CDS index is 'iTraxx Europe Its comprise of 125 equally weighted European "names" (reference instruments) selected by means of a poll of dealers who are asked to identify the most widley traded default swaps over the past six months.

This index is further subdivided into sectors reflecting business activity; for example, Autos, Financials (yee haw!), etc. This index is also divided along other dimensions e.g., liquidity and high volatility. The idea here is to look at CDS data across multiple axis and not just as a monolithic block of 125 names (sidenote: this is done in the S&P as well - we've got the S&P 500 and then we break out the S&P Financials, S&P Energy, etc).

We try to standardised the CDS' comprising this index as much as possible; typically looking at 5Y, 7Y and 10Y default swaps. This index is reconstituted every six months; once again, looking at the equity markets, compare and contrast with the S&P 500 or even The Dow, where readjustments to the index take place periodically, according to well defined rules. This helps us gain confidence that the index in question (i.e., The Dow, S&P 500, iTraxx) is what we call unbiased and is a "true" reflection of credit conditions.

For reasons previously mentioned, data for specific iTraxx Indices is difficult to obtain for free. We can, however, get free quotes for a form a reference data called Tradable Credit Fixings.

A firm named "creditex" provide publicly available data on Credit Fixings.

This paper explains the methodology used to create the fixings.

Keep in mind this data IS NOT single name, credit default spread data.

Also, I've been maintaining a (embarassingly!) crude tally sheet, as it were, of banks announced losses and capital raised (either via equity offerings or as of late, direct funds provided by Central Banks).

Take this and do what you will with it; I don't guarantee the quality nor completeness of the data, and it's provided solely for educational purposes. I think Google Docs will let you dl to excel - if not don't hesitate to contact me and I'll send across a copy.

Hope this helps! Follow up inthread or via email as you see fit if I can be of more assistance!

Apologies for a tardy response - I didn't see the query until later this evening ...
posted by Mutant at 3:17 PM on September 30, 2008 [1 favorite]

Response by poster: Thanks Mutant, it seems like my suspicion was right: if you're not a trader with access to Bloomberg box, you'll find out your bank is failing at the same time as everyone else, through the press.

I found that Fitch provides ratings info and ratings news for free, but I'm assuming that they aren't updated frequently enough to keep up with how fast things are falling apart these days. They only downgraded Fortis's debt yesterday.

I guess the only rational thing to do is to keep my money spread around in different banks, stay within the limits of government bank account insurance, and hope for the best ...
posted by fuzz at 3:27 AM on October 1, 2008

also note that Spain is one of the few Euro countries not hurting right now due to the nature of the banking system there and the additional regulation introduced after they had their own tough time in the 70's. At the moment Banco Santander is hovering up the possibilites and looks to be making money out of this crisis. (since you said you had some monies in Spain) Buena Suerte!
posted by Wilder at 9:40 AM on October 1, 2008

also note that Spain is one of the few Euro countries not hurting right now


Muahahaha. Spanish banks would be dead by now without massive help from the ECB.
posted by yoyo_nyc at 1:02 PM on October 1, 2008