Skip to main content

That giant sucking sounds: European banks are in real trouble

First, the Italian banks are in a real pickle; Monte de Pachi (notionally the world's oldest bank) is in such dire staits that even the market is now reacting.  European bank stock prices are limit down almost every day for the following reasons:


  • 34% of all Greek loans are bad or non-performing 
  • Ireland 19% 
  • 17% of all Italian loans are non-performing or bad
  • Portugal 12%. 

And we haven’t seen the next serious financial crisis yet. The story of Italian, Greek, Portuguese and Spanish banks is frightening, but not entirely unexpected considering the economic pressure that these economies are facing. In Italy, 17% of banks’ loans are sour. Putting that figure in perspective that is nearly 10 times the level in the U.S. bad loans in the 2008-09 financial crisis, where the system wide bad loans was around 5%.

The Italian government created a bad bank with Euro 4.5 billion in capital, but its trying to purchase nearly Euro 360 billion in bad loans from Italian banks.  That pig will not fly.  The sclerosis that is Europe means that this crisis has been ongoing for months.  On one side there is the ECB and Germany that say:  no state help to the banking sector, and on the other side you have the ECB and Germany that say:  Italian government has to clean up that mess! (yeah I did this on purpose)

Things get more complicated, for while the PIGS's banks are in deep trouble, their northern neighbours are still undercapitalizes.  DB's stock prices is entirely due to the very very high leverage and the requirements that it raise more money (or cut lending -- or a combination of the two).  The 2008 crisis was very hard for all banks, even those who had done nothing wrong:  Its called contagion.

Meanwhile in Switzerland:

On the other side, we've got Switzerland (God they must be happy they never wanted into the Euro club) as of last week their 50 year bond interest rate drop to -2.27bps -- Yes folks if you lend money to the Swiss government the interest rate will be -0.0027% per annum -- a real bargain.  

A real indication how serious things are; big money doesn't care about yield they just don't want to lose their principal (that's how you make money in the long run).  It's also a currency play, as soon as interest rates revert to positive, the Swiss Franc will go trough the roof.

The fat lady is not yet signing, but she's certainly doing her voice exercises!

Comments

Popular posts from this blog

Trucker shortage? No a plan to allow driverless rigs

There are still articles on how America is running out of truckers -- and that its a huge problem, except its not a problem, if it was a problem salaries would rise to so that demand would clear. Trucking is one of those industry where the vast majority of participants are owner/operators and therefore free agents.

Salaries and cost are extremely well know, "industry" complains that there are not enough truckers, yet wages continue to fall... Therefore there are still too many truckers around, for if there was a shortage of supply prices would rise, and they don't.

What there is though is something different; there is a push to allow automatic rigs to "operate across the US", so to encourage the various authorities to allow self driving rigs you talk shortage and hope that politicians decided that "Well if people don't want to work, lets get robots to do the work" or words to that effect.

This has nothing to do with shortage of drivers, but every…

Every punter says oil prices are on the rise: Oil hits $48/bbl -- lowest since September 2016

What the hell?

How could this be, punters, advisors, investment bankers all agreed commodity prices  in general and oil prices in particular are on the rise...its a brave new era for producers and exporters -- finally the world is back and demand is going through the roof, except not so much!

What happened?  Well energy is complicated, the world operates in a balance -- 30 days of physical reserves is about all we've got (seriously) this is a just in time business.  So the long term trend always gets hit by short term variations.

Global production over the past 12 months has risen by somewhat less than 1.5% per annum.  As the world market changes production becomes less energy intensive (maybe), but the reality is that the world is growing more slowly -- America Q4 GDP growth was around 1.9% (annualized) Europe is going nowhere fast (the GDP growth in Germany is overshadowed by the lack of growth in France, Italy, Spain (lets say 27 Euro members generated a total GDP growth of 1.2…

Paying for research

This morning I was reading that CLSA -- since 2013 proudly owned by CITIC -- was shutting down its American equity research department -- 90 people will be affected!

Now the value of a lot of research is limited, that is not to say that all research is bad. In fact, I remember that GS's Asia Aerospace research was considered the bible for the sector.  Granted, there was little you could do with the research since the "buy" was for Chinese airlines...that were state owned.  Still it was a vey valuable tool in understanding the local dynamics.  It seems that the US has introduced new legislation that forces brokers to "sell" their research services!  Figures of $10,000 an hour have been mentioned...

Now, research can be sold many times; if GS has 5000/6000 clients they may sell the same research 300x or 400x (I exaggerate) but this is the key -- Those who buy the research are, I presume, prohibited from giving it away or selling it, at the same time the same rese…