Bank bailout: Europe counts losses while US enjoys billions

Sixteen years after Lehman’s collapse, the lesson is: act quickly with great force

Sixteen years after the financial crisis, European taxpayers are still counting the cost of bailing out their banks. Unlike the US, where public money was paid out years ago, European governments are still reporting losses on bets in some of their biggest banks.

Get Commerzbank AG. Last week, the German government sold a 4.5% stake in the bank to Italy’s UniCredit AG, leaving it with a 12% stake. The situation goes back to 2008, when Commerzbank became the first German bank to benefit from a bailout fund established by the state, drawing 18.2 billion euros in two installments. Including proceeds from last week’s sale – for which UniCredit paid a premium over the current market price – Berlin recovered 13.9 billion euros. But even with Commerzbank shares at a 10-year high, the government is still losing €2.1bn.

This differs from the US experience. Under Treasury Secretary Henry Paulson, the federal government forced the largest US banks to accept government money as part of its Troubled Asset Relief Program (TARP) in October 2008. Some banks returned for more, but within two year, the government has recovered most. money, in many cases even at a profit. When he sold his last holdings in Citigroup Inc. in December 2010, the Treasury Department reported a realized profit of $12 billion, locking in “significant gains for the taxpayer,” said Tim Massad, acting assistant secretary for financial stability.

In Europe, the Dutch government is the closest to turning a profit on its interest in ABN AMRO Bank NV. The state took over the bank in full in December 2008 at a price of 21.7 billion euros. Since its reintroduction to the stock market in 2015, the government has raised nearly 11 billion euros, including 1.2 billion euros announced last week as part of trade program that reduced state ownership to 40.5 percent. Along with dividends of €6.1 billion, the government got back about €17 billion, adding to the current value involved, to leave a small profit overall. But politicians are hardly celebrating. Finance Minister Sigrid Kaag prepared a census for the Dutch parliament last year that included a financial cost of €6 billion on the upfront costs. To recover this the ABN AMRO share price would have to double.

In the UK, the ledger looks worse. In November 2008, the British government became the majority shareholder with 58% in the Royal Bank of Scotland – now known as NatWest Group Plc – pumping in £45.9bn of money Its shareholding is now down to 18%, the government has withdrawn £29bn through share sales, dividends and taxes. A targeted share buyback in May allowed it to recoup £1.2bn and it is still selling shares into the market at a rate of around £450m a month. But at £5bn, the value of his remains is not enough to cover his costs. Although it made money from Lloyds Banking Group Plc and other holdings (before financing costs), it was NatWest that exposed UK taxpayers the most.

Although US banks did not have to deal with the eurozone financial crisis after the 2008 crash to the same extent as their European counterparts, the US experience shows the benefits of injecting more capital early and creating an enabling environment for banks to finance themselves privately. markets.

The only major financial institutions in which the Treasury remains involved are the housing giants Fannie Mae and Freddie Mac. But even here the difference is great. The Treasury now has $110 billion in earnings in those two companies, after taking out $301 billion in dividends from $191 billion in capital injections. “From a practical standpoint, it helped us reduce our overall deficit,” said former Treasury Secretary Jack Lew.

And the benefit is greater. Based on the terms of the bailout, Fannie and Freddie still owe the government another $334 billion, and if the Treasury Department decides to forgo some of that, it will benefit common shareholders, of which 80% involved in the Department of Finance.

As they struggle to lose their grip, European politicians must watch in amazement. Saving may not be as popular on the other side of the Atlantic, but it is much more rewarding.

Mark Rubinstein was a former hedge fund manager. He is the author of the weekly financial newsletter Net Interest.