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Why oh why would you invest in a German bank preferred at this early stage of the European crisis? There is a real possibility that the Euro debt crisis will dissolve into something much much worse than our mortgage debt crisis in 2008. We had the advantage of a single Federal government to at least attempt to steer us away from the abyss. Europe has no real political unity, and scenarios where in a bank collapse Germany refuses to recapitalize banks of other countries might mean wholesale bank failures across Europe. It could get so much uglier than anyone in the popular press wants to hypothesize today.

Look at where bank preferreds went during the US 2008 event. Even if you speculate that Germany will not all DB to fail (they won't) that doesn't mean Germany will protect preferreds. That trade looks like two points up and twenty points down, and that isn't risk and reward in a good balance.

I'm studying European banks because if the collapse comes and you can identify a bank that is certain to survive without needing to raise capital, you will be looking at big big wins. Finding such a bank is easier said than done. Does anyone have any candidates? I'm hoping to study Italy's largest bank Intesa San Paolo starting next weekend. They don't need much wholesale funding for the next year to survive, but the big question is how much of their capital is tied to sovereign debt, and can they take a 70% haircut on that debt without needing to massively recapitalize.

If anyone is interested in putting together a study group on this subject please contact me persistentone AT
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