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It is easy to think US banks have been far and away the biggest dumping ground for credit losses since the subprime mess first exploded. It would also be wrong. European banks have lost almost as much money as their American peers. The scary part is that European banks have written off toxic credit left, right and centre while their domestic economies have done relatively well. As the European economy slows, they will have to take the hit from old-fashioned loan losses too. That does not appear to be fully reflected by share prices.

Globally, banks have taken some $493bn of subprime-related credit writedowns since the start of last year. Of that, American banks account for $250bn and Europeans some $221bn. The bulk of these losses has been concentrated in Europe’s few truly global banks – the giant UBSs and HSBCs of this world. But more domestically orientated banks have suffered too. France’s BNP Paribas, for example, wrote down €542m on bond losses this week.

When the Europeans finish the summer reporting season, their total writedowns can only rise. Barclays, the UK bank, on Thursday singlehandedly added almost $5bn to the charge sheet. This has several consequences. Europeans will have to raise more capital than they have to date. So far, European banks – led by the UK – have raised $160bn of fresh money, against $177bn in the US.

More importantly, the US housing bust is more advanced than the property price collapse in Europe. Yet housing markets in Spain, Denmark, the UK and Ireland have been no less bubbly than in the US. Losses on secured and unsecured loans that European banks hold on their books will grow as the continent’s economy slows. Spain is already flirting with recession.

The US and European economies are of similar size, as are their banking industries, which both have market capitalisations of about $1,000bn. Yet European banking stocks have outperformed since the credit crisis began. So far, US banks have suffered most. The worst is yet to come in Europe.

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