5. Project Isobel (Securitization)
At roughly EUR1.4 billion, this pool of troubled property loans originated by Royal Bank of Scotland (RBS) and partially sold to Blackstone Group (BX) is, by itself, far too small to pose a threat to global markets.
However, it represents just the beginning of a coming "wave" of similar transactions where European institutions pool together and sell off troubled assets, according to KPMG . The consulting giant estimates more than EUR1.5 trillion in nonperforming loans are still sitting on European bank balance sheets.The European debt crisis has been around for long enough that it is difficult to believe prospective investors or ratings agencies aren't aware of the risks related to Project Isobel or future securities of this type that get created from that EUR1.5 trillion in troubled loans. Still, the possibility of contagion from a European debt crisis is very real, according to Yale's Metrick. "It's very hard to know where the third degree exposures are to Spanish and Italian debt. If Spain and Italy are unable to maintain the Euro at some point and have to go out of it, it's not obvious that German debt will be safe at that point. What's the exposure to German debt? What's the exposure to the institutions that are exposed to German debt? Nobody knows that," Metrick says.