Wednesday, March 25, 2009

World's Biggest Banks

. Wednesday, March 25, 2009

And their market value. The corpses are in gray. It's easy to see why Europe has been hit so hard by the credit crunch and liquidity troubles, even if their exposure to toxic MBS was not direct (although it quite often was).

From the Guardian UK's intriguing new Data Blog.


Thomas Oatley said...

I don't see what is gained by looking solely at assets relative to market value. Isn't assets-liabilities relative to market value the meaningful metric?

Also, if you find the file too small, click through to the guardian link and download the pdf file.

Kindred Winecoff said...

i think the idea is that assets are generally in long-term investments (e.g. housing), while liabilities are short. now that the actual "value" of assets is so uncertain, this graph gives an idea of which countries are most vulnerable to further collapses in the financial sector (if, e.g., mortgage default rates keep going up). presumably, market beliefs regarding the "true value" of balance-sheet assets should be reflected in the market value of the firm. so Citi is "worth" much less than Wells Fargo despite having many more assets on their balance sheet.

plus it's just interesting to see where the money is held, and how market value is not necessarily a function of asset-holdings. i was surprised that the U.S. doesn't have a bank in the top 5, for example.

it's crude, yeah, because not all banks have the same exposure to MBS and other toxic asset-backed securities. but given counterparty obligations, that might not mean that much in the end.

Thomas Oatley said...

But isn't market value a best estimate of what the overall balance sheet looks like? After all, if you buy it you assume the liabilities as well. Consequently, Citi is worth less than Wells Fargo in spite of its larger pool of assets in part because of its correspondingly larger pool of liabilities and in part because of the larger discount attached to Citi's assets.

After all, even Iceland's big three still show positive assets. Clearly that's not a very meaningful characterization of their financial position...What am I missing?

Kindred Winecoff said...

not sure that you're missing anything. i think we're just looking at it differently. the way i'm looking at it is that the asset-liability balance is merely an accounting identity, which should be roughly in balance at all times. but in these times, the burden of liabilities is pretty certain but the value of assets is not: since default risks are higher, it's possible that many of these banks are or will be insolvent.

the banks with the most "assets" on the books are really banks with the most receivables outstanding. therefore, they are the most vulnerable to default, which is why their market value is lower (in general, by eyeballing it). this of course would be most true for companies with a lot of illiquid assets that have to mark to market: who's to know what the "true" value is?

my original point was that the picture says more about the distribution of exposure to risk across countries than the actual health of any particular bank. and this means that Europe's banking system is probably in bigger trouble than the U.S.'s.

doesn't that make sense?

World's Biggest Banks




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