European banks are in such trouble that the European Union is considering stepping in, The New York Times reported.
The situation is so bad that Standard & Poor’s European banking analyst Scott Bugie predicted that bad loan write-offs at Europe’s 50 largest banks will double next year.
Belgium’s KBC bank is especially hard hit.
“It’s Belgium’s third-largest bank, and it has had three successive rounds of aid, and they still can’t target the problem,” said Karel Lannoo, chief executive of the Center for European Policy Studies in Brussels.
The reason is that as the credit boom approached its zenith, a small group of KBC bankers designed and sold exotic securitized investments for which they promised investors risk-free returns.
KBC is now facing lawsuits for those promises from a group of European companies who claim the securities investment team was unsupervised.
The bank has twice received 7 billion euros in public funds. When bond insurer MBIA said it could not pay off on its riskier positions, the bank became responsible for another 14.5 billion euros in collateralized debt obligations, leading KBC to ask for an additional 22.5 billion euros.
Forbes magazine reported that although the European Union approved a loan for state recapitalization and a government guarantee to cover potential losses for six months, EU regulators said their approval was temporary and Belgium must draw up a restructuring plan for the bank within three months.
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