Billionaire investor George Soros said continental European banks haven’t been “properly cleansed” after the credit crisis because they haven’t marked the value of their holdings to market prices.
“The current crisis is more a banking crisis than a fiscal one,” Soros, 79, said in remarks prepared for a speech in Berlin today. “Bad assets haven’t been marked to market, but are being held to maturity. When markets started to doubt the creditworthiness of sovereign debt it was really the solvency of the banking system that was brought into question because the banks were loaded with the bonds of the weaker countries and these are now selling below par.”
Banks are struggling to get short-term funding because the interbank lending and commercial paper markets have dried up, he said. Firms have instead turned to the European Central Bank for short-term financing and to deposit their excess cash, Soros said.
European policy makers have pledged to publish the results of stress tests on their banks in a bid to reassure investors. Only the region’s 25 biggest banks will be examined, according to Andrew Lim, an analyst at Matrix Corporate Capital LLP. Bank executives including Deutsche Bank AG Chief Executive Officer Josef Ackermann have said publishing the tests could undermine confidence in the banks unless governments promise aid.
“We cannot judge how serious the situation is until the results are published,” Soros said today. “Indeed we shall not be able to judge even then because the report will deal only with the 25 largest banks and the biggest problems are in the smaller banks, notably the Cajas in Spain and the Landesbanken in Germany.”
Spanish, German Banks
Recapitalization of the smaller banks including Spain’s savings banks and Germany’s state banks should be “compulsory” because they are “way over-leveraged,” Soros said.
Hungarian-born Soros gained fame in the 1990s when he broke the Bank of England’s defense of the pound and drove the currency from Europe’s system of linked exchange rates. He also successfully bet that Germany’s mark would rise after the collapse of the Berlin Wall in 1989 and that Japanese stocks would start to fall in the same year.
Soros Fund Management LLC manages about $25 billion. The executive said in April that he was no longer running the fund.