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This is the skinny on those French and German banks that are at significant risk to PIIGS drowning, or potentially even getting significantly wet. The sell side banks have released reports on which bank is exposed to Greece, etc., but we decided to take it a few steps farther in order to create a truly actionable document that our subscribers can actually use to base concrete decisions upon. As is customary, I am releasing snippets of the proprietary research for free to the blogoshpere. This time around, I'll feature a European bank that we feel is thoroughly insolvent, yet trading at one of the highest premiums in all of Europe! As excepted from the reports referenced below:
Deutsche Postbank
The bank reported its exposure to sovereign debt of Greece, Italy, Ireland, Portugal and Spain at €1.3 billion, €4.7 billion, €350 million, €50 million and €1.2 billion.
Applying the loss rates under the base case, the total estimated losses on sovereign debt holdings is €1.7 billion (60.1% of tangible equity) on the total European sovereign debt exposure of nearly €24.9 billion (based on the reported sovereign debt exposure of December 2009). The existing Texas ratio of the bank is 139%, and if we include the losses on sovereign debt (unconventional, but illustrates solvency in a clearer fashion), the Texas ratio* will be 177%. The bank is trading at price to tangible book value of 1.83x. The stock is trading on a high multiple largely owing to speculation of full takeover by Deutsche bank. The float is 36% of shares outstanding as 39.5% is owned by Deutsche Post and 25% is owned by Deutsche Bank. See Deutsche Bank vs Postbank Review & Summary Analysis - Pro & Institutional and Deutsche Bank vs Postbank Review & Summary Analysis - Retail for a detailed overview and analysis of the unusual Deutsche Postbank situation.
*Texas ratio = (Non-performing and past due loans + losses on sovereign debt)/ (Tangible equity + Provision for loan losses)
DBPost Bank PIIGSDBPost Bank PIIGS
We started this project from scratch with no pre-conceived notions and came up with the usual suspect nations in regards to claims exposure to the PIIGS. Wait! There are conditions to that finding though. Conditions that I haven't seen in the myriad array of sell side reports that we have perused. Subscribers are urged to view 
Irish Bank Strategy Note before we move on to understand the limits of using simple foreign claims as a guage of potential risk events. Our proprietary sovereign contagion models ( Sovereign Contagion Model - Retail (961.43 kB 2010-05-04 12:32:46) and Sovereign Contagion Model - Pro & Institutional) address the shortcomings of this perspective in complete detail, and I will expand on those shortcomings in a future post, hopefully later on today.
Below is a screen shot of the summary of 29 page professional version of the PIIGS exposed bank analysis.
Bank PIIGS page 1Bank PIIGS page 1
Subscribers can download this document here: Euro Bank Soveregn Debt Exposure Final -Retail and Euro Bank Soveregn Debt Exposure Final - Pro & Institutional
The complete Pan-European Sovereign Debt Crisis analyiss (and its origins), to date are available free to the public: The Pan-European Sovereign Debt Crisis!
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Bank PIIGS page 1Bank PIIGS page 1
