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If you think Britain’s exit from the European Union is going to be a shock to the economy, wait till you see the potential dire straits of Europe’s most vulnerable banks.
I can discuss this topic with precision because today’s the day that our Weiss Ratings division has updated the first-ever, independent and objective safety ratings of the largest global banks in the world.
We are independent because, unlike Moody’s, S&P or Fitch, we accept no compensation whatsoever from the rated institutions. Unlike those Big Three agencies, we also never give the institutions a “preview” of their ratings, never allow them to “appeal” ratings they disagree with, and never suppress publication at their request.
That’s why the U.S. Government Accountability Office (GAO) found that the Weiss Ratings of insurance companies greatly outperformed those of Moody’s, Standard & Poor’s, A.M. Best and others in warning consumers of future failures.
It’s also probably why a study reported in The Wall Street Journal demonstrated that the Weiss Stock Ratings outperformed those of all major Wall Street banks and research organizations.
Average Rating of Eurozone Banks: Absolutely Astounding
We apply these same principles — conflict-free research and accuracy — to our global bank ratings, and here are the big-picture results, based on March 31, 2016 data …
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Among banks in North America, the average Weiss Safety Rating is C+.On our rating scale, which is similar to school grades, that’s “fair,” a passing grade.
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In the Asia and Asia/Pacific region, the average rating is C+ (“fair”).
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And surprisingly, big banks in the Middle East and Africa, despite troubles in certain regions, merit an average grade of B (“good”).
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But …
In the eurozone countries, the average Weiss Safety Rating of the institutions we cover is D+ (weak) — a red-light warning, especially in the wake of last week’s Brexit vote.
The chart below shows exactly how the grades are distributed among banks outside of the Americas:
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The eurozone has the most astounding concentration of large weak banks I’ve ever seen in all the 45 years since I founded my research and ratings company:
Among the banks we cover in the region, 55.3% get a Weiss Safety Rating in the D range (D+, D or D-), while the balance (44.7%) get no better than Cs.
This contrasts with Asia and the Asia-Pacific, where 46% of the institutions are in the B range and only 19% are Ds. And it contrasts even more sharply with the Middle East and Africa where 58.5% are Bs and there are no Ds.
What’s most illuminating of all, however, is the contrasts inside Europe itself:
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If a bank is based in an EU country that does not use the euro (such as the U.K., Sweden and Poland), it’s less likely to have financial weaknesses than eurozone countries like Spain, Italy, France or even Germany.
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And if a bank is based in European countries outside of the European Union entirely, such as Switzerland or Norway, it’s even less likely to have problems. (You can see this in the last group of bars in the chart above.)
Evidently, the European Union has not been good for the financial stability of most banks. And the euro currency has been even more damaging.
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I repeat: The eurozone has the worst concentration of large, weak banks I’ve seen since we began scrutinizing bank financials back in 1971.
What About Prior Banking Crises?
No, it’s not the first time I’ve seen many banks in the danger zone. In the 1980s, for example, almost one-third of the U.S. banks and S&Ls we rated were in that category. And in the years that followed, 3,700 failed.
Nor is it the first time that megabanks have been vulnerable to failure. In 2007, for instance, we issued D ratings for some of America’s largest … we got frequent flack for our low grades … and later, after they failed, occasional accolades.
Rather, what’s so surprising in this instance is that the AVERAGE grade, including ALL of the institutions in the eurozone that we cover, is so low.
Of course, the preponderance of Ds doesn’t mean that dozens of banks will start failing tomorrow. Nor does it mean that every single one with a bad grade will ultimately go under. But it does signal three things:
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A higher-than-average probability of failure among large eurozone banks.
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Systemic, eurozone-wide financial weakness that could cripple Europe’s economy, with far-reaching global consequences.
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Major vulnerabilities to a political or external shock, such as Brexit.
Why Isn’t This Headline News?
Yes, I know. All the headlines right now are about the Brexit vote. That’s what has lit the fires, stirred the markets and padded media company revenues.
But the Brexit story could eventually die down. This one will not. Quite to the contrary, it could emerge as one of the biggest threats to the global economy, starting from Europe, spreading to Asia, and then to the Americas.
The likely shock waves follow a path that’s similar to what my colleague Larry Edelson has described regarding the future financial difficulties of highly indebted governments: First Europe. Then Japan. And ultimately the United States.
And now, this data reveals a side of the debt pyramid that’s often out of the spotlight, hidden behind inflated ratings, or simply covered up. Our goal is to break through those unfortunate barriers to your knowledge and to give you the tools you need to make prudent, informed decisions for your money.
The 6 Weakest Among Large Eurozone Banks
So let me start by naming some names. Among the largest eurozone banks, here are the six weakest:
Large Eurozone Banks:
| Bank | Country | Weiss Rating |
| UniCredit SpA | Italy | D |
| Intesa Sanpaolo SpA | Italy | D+ |
| CaixaBank SA | Spain | D |
| Dexia SA | Belgium | D+ |
| Bankia SA | Spain | D+ |
| Banco de Sabadell SA | Spain | D+ |
All six of these institutions merit a rating of D+ or lower, which we consider to be a danger zone.
All have at least $200 billion in total assets.
And all have multiple reasons for their weaknesses …
Low liquidity, especially in the case of UniCredit SpA, Intesa Sanpaolo SpA, CaixaBank SA and Bankia SA.
Large bad loans almost across the board, except perhaps for Dexia SA.
Poor asset growth, also nearly across the board, with the possible exception of Intesa Sanpaolo SpA and Banco de Sabadell SA. Plus …
Operating losses at one of the six banks — Dexia SA.
So many troubles! And despite a seemingly never-ending series of capital infusions from governments that are, themselves, still mired in excess debts!
Which Eurozone Countries
Have the Weakest Banks?
Five of these six banks are based in Italy and Spain. One is in Belgium.
Meanwhile, most people think that German banks are very strong. But that’s rarely the case.
Deutsche Bank merits a Weiss Safety Rating of only C+; both Commerzbank and Deutsche Postbank get a C-; and IKB Deutsche Industriebank, a D-.
According to the German financial watchdog Bafin, this is especially worrisome in the wake of the Brexit vote. “The biggest banks would have the biggest problems," says Bafin President Felix Hufeld. “They have the most activities in, and with, London.”
Specifically, Deutsche Bank and Commerzbank are the German banks with the largest business dealings in Britain.
Your Action Plan:
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Be sure to find out the Weiss Safety Rating of the institutions you rely on to safeguard your money and your finances, including not only banks but also credit unions and insurance companies.
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Find out which ones are among the safest in your state.
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If your money is in the danger zone, seriously consider moving it to a safer place. This applies to major regions in trouble like the eurozone as well as individual institutions.
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Also look up the Weiss Investment Ratings for your stocks, ETFs and mutual funds.
To have all of these resources at your fingertips, plus much more, go here.
Plus, as always, continue to build cash reserves to help prepare for unexpected black swan events that can be very disruptive to global financial markets — and very destructive to your investments.
Best wishes,
Martin D. Weiss, Ph.D.
with Gavin Magor,
Weiss Ratings Senior Analyst
Dr. Weiss founded Weiss Research in 1971 and has dedicated his entire career to helping millions of average investors find truly safe havens and investments. He is Chairman of the Weiss Group, which includes Weiss Research and Weiss Ratings, the nation’s leading independent rating agency accepting no fees from rated companies. His last three books have all been New York Times Bestsellers and his most recent title is The Ultimate Money Guide for Bubbles, Busts, Recession and Depression.
{ 34 comments }
Governments are printing money and the US money supply has increased by almost a Trillion in the last year (see St Louis Fed web site). Banks cannot fail if the government gives them free money. The corollary is eventually seeing massive increases in asset prices, land, stocks and as Larry points out, gold.
What if the governments are themselves bankrupt? What if the ECB’s balance sheet becomes negative from capital losses on all those bonds they’re buying?
Hi Martin
I’m still in cash and still uncertain which way things are going to go. Do you support a high cash position and what would be your timetable for change? All the best.
Thanks for valued information…seek your views on Gold
The pattern reminds one of banks in New York in the 1960’s and 1970″s. Merger’s and acquisitions solved some of the problems but were done with the safety net of the Federal Reserve and the F.D.I.C. Goldman Sacks came under the commercial bank umbrella in 2008, concurrent with F.D.I.C. insurance rising to $250,000. In the 1960’s deposit insurance was only $10,000. The history of the F.D.I.C. would mark a lot of the moral hazard in banking since its beginning.
WOW not even one B rated bank in all the Euro zone ????
I wonder how many Bail ins are on the way ????
someone should research the amount of deposit insurance for account from the F.D.I.C.’s founding in the 1930’s.
Thank you, Martin, for the expert analysis
and charts. I read y’alls newsletter everyday.
Charles in Texas
The fact that Deutsche bank has the largest derivative position in the world ,which is estimated over 60 trillion dollars makes Europes banking system look even scarier .
I watched Faux news today and they had Newt Gingrich and Mike Huckabee touting that voters the ordinary Joes are tired of the establishment thats why they favored DT. I almost chucked my cookies laughing these two old dinosaurs who by the way in their time WERE part of the establishment go on public television spouting this garbage incredible. They sure have a pair of big ones. Friday was another day for laughter when the Dow was dropping and Maria B was there urging people to get into the market and “scoop up” the bargains. I went back and watched my gold stocks deliver a $1000 for the day. What a shill.
Looks like you had a bad day today, Gordon.
Remember that European companies mostly do their banking with those Euro banks.
What is their, and their stocks, risk, if some of these banks fail? Scary!
Great reading. Which US bank has the closest ties to DB and BACLAY ?
I think a C+ for Deutsche Bank is way too generous… they are on the brink of bankruptcy due to their blown up derivatives book. Best they could be is D-
Agree. I think C+ on DB is out of date.
D- wow Deutsche Bank is right there with Peppermint Patty !!! LOL !!! But seriously you are correct there derivatives are estimated to be over 60 Trillion Dollars .
Deutsche Bank just failed there Stress Test for the second year in a Row !
That was the US subsidiary that failed.
Thanks Terry I did not realize that .
A bank’s exposure to derivatives can be misread. For example DB is the host bank for a number of ETFs and when assessing the bank’s exposure the total value of all the shorts and longs forms the open position. A tracker ETF sells units to investors and uses their payments to buy the underlying securities. Because the two are not deemed for accounting purposes to cancel each other out – double the value of the investors purchases is counted as the bank’s exposure.
Interestingly enough I’m hearing how being invested in Precious Metals isn’t enough If & When the crap hits the fan. My Adoptive Father is a Numismatic & has been for about 40yrs. He has stated that we should All have both gold & silver surpluses More silver than gold as it’s easier to trade with!! However WHEN things get really bad there must be something even better than precious metals so I am told BUT have to buy some book to find out I’m curious what it could be & would Love that info so I can protect myself!! I can think of only one other thing GUNS & AMMO!!!
Rose if things get really bad a supply of canned foods and bottled water might be some things that you need also .
A good water filter such as Alex Jones sells would make far more sense than storing water that will turn rancid in several months. I filter all my water with a gravity fed alexpure
Buy distilled water or a distiller and distill your own. Distilled water is pure and will not get rancid. Filtered water is nothing.
It was one year ago that Greek voters rebelled against austerity measures sought by Brussels, as a condition of allowing Greek government bonds to be used as collateral to borrow from those weak European banks.
Greek finance minister Yanis Varoufakis made headlines, with his brinkmanship in carrying out the voters’ mandate.
Brussels retaliated by shutting off the flow of cash for 60 days. Trucks stopped delivering cargo. Store shelves got empty and stayed that way. Retirees were allowed to cash a limited part of their pension checks. After 60 days of near-starvation, Athens capitulated and paid what Brussels demanded. And EU officials proclaimed the worst to be over.
Now that it is obvious to everyone who was awake last year, that Brussels regulators will ignore the results of a democratic election and will demand to have it their way, no matter what, a lot more Europeans are voting Yea, Si, Ja, and Oui, to scary economic consequences, and Nay, No, Nein, and Non, to the further erosion of democracy.
Sadly, America’s Obama threatens British voters that they will be at the end of the queue for negotiating any sweetheart corporate tax-and-duty deals, as part of the next round of free trade talks.
Yes, Mr Obama, that’s the point.
Just as Europeans (and Americans) spilt a great deal of blood in WW II, restoring democracy to Germany and Italy, we’re willing to pay something to keep democracy going. If we have less than 100% employment and we keep the right to vote, that’s better than 100% of the population busy obeying orders and nobody’s vote ever counts for any purpose.
BOB
Great post ! I believe it was a few years ago that Iceland rebelled and threw all there corrupt bankers in jail ! The result was the best growing economy in all of Europe . The retaliation came in the Panama papers when it was found out that Ice lands leaders were laundering money out of the country and were forced to resign . Now the Question is will Ice lands leaders keep Ice land economically free from the bankers tyranny ????
Vinman
The Greek government added there Banks Debts on top of there already high Debt load and that’s what did them in .
Their has been a bubble in stock.Fed making poor decisions and should be audited .Banks have been on edge of collapse for months.Brits just decided to get out of NWO total control before this ship sinks. Free people will not go willingly into total control,loss of sovernty and slavery by U.N and a few rich eliet with power sickness.
This article explains in graphic detail why the Brits want out of the EU. There may be a breakdown of voters and length of time in Britain but I haven’t seen it. If there is, it will probably show a divergence according to birth country in their vote to exit or remain.
Interesting read. With the cromnibus legislation in the U.S. And the ” bail in” of the Canadian budget, might not the depositors, who are now considered “stake holders” in the banks, be subjected to the Greek experience?
Wonder if the law suits against some of the big banks for price fixing of metals will have any impact?
When will evaluation of moral history be recognized in analysis of nations and institutions?
Shall we delay until nothing remains?
What’s a black Swan event?
$247. so I can check out my one bank over the course of a year? I think not. That’s really sticking it to us little folks.