Industry Updates

BlackRock’s Fink calls for restructuring of Europe’s banking system, warns crisis can extend beyond Greece

Tuesday, May 31, 2011

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Laurence D. Fink Opalesque Industry Update – Laurence D. Fink, Chief Executive Officer of BlackRock Inc., a provider of investment, advisory and risk management solutions with $3.65tln in assets under management, has warned that the current financial crisis in Europe is not confined to Greece but can spread in other parts of the continent.

In an interview with Bloomberg, Fink has also called for the immediate reorganization of the European banking system to mitigate the crisis.

Speaking from Hong Kong, Fink declared, “The European problem is way beyond Greece. Greece is the most immediate problem. I find it very difficult to restructure Greece without the understanding that we’re probably going to have to restructure Ireland and restructure Portugal.”

According to Fink, many small banks in Europe need recapitalization. However, the continent’s largest banks will also experience stress coming from the devaluation of some of the sovereign credit despite being well capitalized.

He added, “The banking system in Europe owns all this debt. If we restructure one country, we’re now basically putting huge capital stress on these banks. Before we restructure any country, we’re going to have to restructure the banking system in Europe.”

For Europe to survive this new round of financial crisis, it needs a “giant TARP”, Fink added. The U.S. government introduced the Troubled Asset Relief Program at the height of the global financial crisis in 2007 to bail out the local economy, particularly large financial institutions the Federal government deemed “too big to fail.”

Experts from the International Monetary Fund, the European Union and the European Central Bank are currently reviewing the progress made by Greece in meeting the terms of the $157bn bailout package given last year. After the review, the EU will draft a new plan to provide further aid to Greece.

In April, Citigroup defended its analysis which it emailed to several industry players, predicting that Greece would be forced to restructure its national debt as early as Easter.

"We are co-operating with the authorities and do not consider there to have been any wrongdoing by Citi or its employees," the bank said in a statement.

EU leaders agree to new anti-crisis package
Concerned with the financial crisis that have beset some of its members since last year, leaders from Europe have agreed to introduce a new anti-crisis package during a two-day summit in March. The comprehensive solution was unveiled after bailing out Greece and Ireland.

However, European leaders have acknowledged that the region is facing new threats from a possible collapse of Portugal.

Early this month, Portugal has accepted a three-year $116bn bailout package from the EU and the IMF. Portuguese caretaker Prime Minister Minister Jose Socrates was forced to accept the bailout after his government collapsed in April which saw a sharp rise in borrowing costs. Socrates, who now faces a snap parliamentary election on June 5, hailed the package as a victory, saying it included more lenient terms than those imposed on Greece and Ireland.
Komfie Manalo

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