4 Nov Asia Special Edition: Europe US Banks deleveraging

Now, come crying for Papa:

Morgan Stanley EU Banks analyst, Huw Van Steenis, continues to think €2tr deleveraging of EU banking assets will take place over the coming 18 months (see report, Some Progress Supports Our National Champion Call, dated October 28, 2011).

EU and US banks’ claims on a Asian sovereign stand at US$246bn, higher than the combined claims on Malaysia, Indonesia, and Thailand at US$166bn. Interestingly, EU banks’ claims on the Asian sovereign alone constitute over 80% of its GDP.

It is important to note that the EU/US banks’ claims at 110% of GDP is even higher than the 95% levels seen in 1Q08. Hence, an orderly or disorderly deleveraging of EU banks could have material impact on the country’s growth potential.

During the Great Financial Crises, the country witnessed a rapid reduction in EU/US banks’ claims, which contributed to the impact on overall GDP growth.