Over There

Fitch announced it was downgrading the hybrid securities (preferreds) of eight European financial institutions. They are:

Lloyds Banking Group Plc, Royal Bank of Scotland Group Plc, ING Groep NV, Dexia Group, ABN Amro Holding NV, SNS Bank, Fortis Bank Nederland, and France's BPCE

The reason for the downgrade is that European regulators may order the aforementioned institutions to halt dividend payments. The European Commission has ordered Bayerische Landes Bank and Anglo-Irish bank to halt dividend payments for because the received assistance.

These actions should not come as a complete surprise to my readers. On March 28, 2009 I wrote the following:

"Following my piece on foreign bank leverage, a reader responded with information that a certain German bank had leverage of over 50 time as of last autumn. I have heard similar stories about a number of European institutions, but have been unable to verify actual numbers. I am often asked about other shoes to drop. One large shoe could be the European banks. That may be a sector that all but speculative investors should avoid."


However, I am ashamed of my actions in recent weeks. During the course of my professional duties, I have taken many buy orders from financial advisers for preferreds issued by ING, RBS and ABN AMRO. In the past I would have warned advisers against such purchases. However, I have been pressured by my superiors not to express an official opinion on such matters. Thanks to my management, many advisers and their clients purchased these preferreds not knowing that they were still in danger or believed them too big to not pay dividends. All banks still owing money to their respective government's are in jeopardy of not paying dividends.