Several banks on the old continent, including giant Deutsche Bank, Societe Generale and RBS, have sold state agencies Fannie Mae and Freddie Mac high risky loans totaling almost 200 billion dollars without giving details about the level of risk attached to these “assets”.
Attacks coming from overseas to the euro and the regional banks continue
After U.S. have accused European authorities for not giving financial support to banks at the appropriate level, a lawsuit in U.S. has revealed other irregularities.
Government Sponsored Enterprises (GSE) Fannie Mae and Freddie Mac have lost 30 billion dollars due to toxic loans bought from several European banks, Wall Street Journal writes. Royal Bank of Scotland, Barclays, HSBC, Deutsche Bank, Credit Suisse and Societe Generale sold together to the American agencies loans of nearly 200 billion dollars. It would have been no problem, if the banks would not have “forgotten” to notify the buyer that these assets had a high degree of risk.
European bank shares fell substantially after the American media has published the conclusion of the above-mentioned investigation.
European Revenge
All banks on the above list have greatly suffered from the subprime credit crisis started in the United States. In fact Royal Bank of Scotland (RBS) has come to be majority-owned by the British after it bought, just before the crisis, a bank which had the largest U.S. toxic loans in Europe (ABN AMRO BANK).
Societe Generale was in trouble after a dealer at the bank, already famous Jerome Kerviel, lost more than 5 billion euros because of investments made on U.S. assets. The well-known subprime loans were somehow encouraged by the U.S. government by laws that allowed people with low income to get a house even without a down payment. In some cases banks were forced to lend to people with low income.
The U.S. government was guaranteeing through the Fannie Mae and Fred Mac agencies a part of these loans. Moreover, the banks have built around the mortgage loans derivatives that were sold to other banks or investment funds. This way, because the low income Americans have defaulted on their mortgage, the financial future of several banking giants and even some states was affected. When the Americans with low income have defaulted , the next step was the bankruptcy of large banks and therefore, the current crisis.