Wednesday, July 18, 2012

Global banks seen as opaque, high risk investments

Investors view global banks as opaque, risky investments.

According to a Reuters' article,

Investors see big banks as riskier than before the first flames of the financial crisis flared five years ago and probably always will, according to a new report from Moody's Analytics, a sister company of the bond-rating agency. 
Risk premiums for bank debt are "highly unlikely ever to return to their former levels, both in the U.S. and Europe," according to the report by a team led by David Munves. 
For big U.S. and European banks, the cost of credit default insurance, a measure of investor fear, is still nearly 20 times as high as it was in early July 2007 before the failure of two Bear Stearns hedge funds. The funds were filled with mortgage-related securities and funded largely with short-term instruments. 
Among the reasons cited for the persistent doubts among bank investors are ... since the start of the crisis, the transparency and accuracy of bank financial statements has been questioned ...
Please re-read the highlighted text as your humble blogger has been making this point since the beginning of the financial crisis.  Without ultra transparency, investors do not have the information they need to assess the risk of these banks or restrain the risk taken by these banks.
JPMorgan's sudden admission on May 10 that it had a badly-flawed portfolio of credit derivatives has revived doubts about the ability of big banks to control their risks, the report noted. 

No comments: