Here is the Webinar that I presented the first week in March for Christian Financial Concepts on “Global Banking & Its the Big Short All Over Again”.
Globally, banks are in the uncharted waters of negative interest rates, protracted central bank intervention and stimulus, a lack of liquidity and their own credit worthiness being questioned. They have little room to maneuver and their prospects aren’t looking good. WSJ wrote, it’s been a bad seven weeks for European banks – worse in some ways than even than during the 2008 financial crisis. Deutsche Bank, hit this week by concern over its creditworthiness, is down 39%. While all industry groups have suffered, lenders have been hit the hardest — those in the Stoxx Europe 600 Index have plunged 29 percent this year, including their biggest selloff since August 2011 on Thursday. U.K. banks weren’t spared, with Standard Chartered Plc down 31 percent in 2016, reaching its lowest price since 1998.
The London Telegraph reported credit stress in the European banking system has suddenly turned virulent and begun spreading to Italian, Spanish and Portuguese government debt, reviving fears of the sovereign “doom-loop” that ravaged the region four years ago. “People are scared. This is very close to a potentially self-fulfilling credit crisis,” said Antonio Guglielmi, head of European banking research at Italy’s Mediobanca. “We have a major dislocation in the credit markets. Liquidity is totally drained and it is very difficult to exit trades. You can’t find a buyer,” he said.
Mr Guglielmi said, “there is a gnawing fear among global investors that these draconian “bail-ins” may be crystallized as European banks grapple with €1 trillion of non-performing loans. Declared bad debts make up 6.4% of total loans, compared with 3% in the US and 2.8% in the UK.” The bail-in rules were first imposed in Cyprus after the island’s debt crisis, stripped European bank debt of its hallowed status as a pillar of financial stability, and of its implicit guarantee by states. The regime came into force for the whole currency bloc in January. Both senior and junior debt must now face wipeout before taxpayers have to contribute money. While this makes sense on one level, the eurozone banking structure is now dangerously deformed. Individual eurozone states cannot easily recapitalize their own banking systems because that breaches EU state-aid rules, but there is no functioning European body to replace them. This is what happens when you try to combine separate sovereign nations into one monetary union.
Fox News reported, banking and financial stocks are getting socked by fears that plunging global interest rates will squeeze net interest margins. Negative interest rates mean the biggest U.S. banks, all of which have massive international exposure, will have to pay to hold their cash reserves in central banks in places such as Japan, the Eurozone, Denmark and Sweden, where interest rates have been lowered into negative territory. The idea behind negative rates is to stimulate economic activity by prompting the big banks to lend or invest their cash reserves rather than park them in central banks where in normal times it would generate interest. However, the articles goes on to say, it not working.
Bank shares are down 32% this year alone. The $5.8 billion quarterly loss is the largest since the crisis. Investment banking was a nightmare as revenues fell 17% in 2015. “Revenue from fixed-income trading fell by more than two thirds — a much steeper decline than at Deutsche Bank or any of its U.S. peers,” Bloomberg notes. The culprits: widening HY spreads in the US, “subdued client activity” and of course, “significant mark-to-market losses.”
The WSJ reported, falling yields on government debt are one of the hammers pounding bank stocks. The KBW Nasdaq Bank Index is now down nearly 19% so far this year and has shed a quarter of its value since hitting a post-financial-crisis peak last summer. The reasons for the carnage are many: fears of a global slowdown, worries about energy-related losses, spillover from the grinding down of European bank stocks. But there is also a particular issue at play: bank profitability is again under serious threat. Ultralow interest rates also make it difficult for banks to generate a profit, another reason why banks, Fannie Mae & Freddie mac want to sell more mortgages, especially riskier ones with higher interest rates.
Congress created a new way to bank that it thinks will be helpful, it’s called the “Providing Opportunities for Savings, Transactions, and Lending” Act, abbreviated it’s the POSTAL Act. It authorizes the USPS to provide banking services including checking and savings accounts, money transfers, and “other basic financial services as the Postal Service deems appropriate in the public interest.” Simon Black wrote in a resent Sovereign Man Confidential post, “The US Postal Service hasn’t turned a profit in a decade. As a matter of fact, its total accumulated losses now exceed $51 billion, easily ranking it among the least successful companies in history. And the only way USPS can continue to maintain its operations is with regular bailouts from the American taxpayer.” On that point the USPS seems to be a well matched addition to the American Banking system.
Bank Source Links:
Fear, Uncertainty, Negative Rates Pounding Financial Stocks (2-11-16) Fox News http://www.foxbusiness.com/markets/2016/02/11/fear-uncertainty-negative-rates-pounding-financial-stocks.html
Europe Bank Selloff Deepens as Traders Locked in No Man’s Land (2-11-16) http://www.bloomberg.com/news/articles/2016-02-11/it-s-worse-than-2008-crisis-for-europe-banks-in-no-man-s-land
BOJ’s NIRP failure Triggers Doom-Loop In European Bank & Credit Markets (2.10.16) The Telegraph http://www.telegraph.co.uk/finance/economics/12149114/Europes-doom-loop-returns-as-credit-markets-seize-up.html
When Crunch Comes, Bankers Lie Says David Stockman (2-9-16) Bloomberg Video http://www.bloomberg.com/news/videos/2016-02-09/david-stockman-when-crunch-comes-bankers-lie
Deutsche Bank and the Troubles in European Banking (2-9-16) Bloomberg Video
Bank-Stock Carnage: This Number Is Killing Them (2-8-16)
Parade of Bank Horribles Continues Credit Suisse Posts $6 Billion Loss, Stock Hits Lowest Since 1991 (2-4-16) http://www.zerohedge.com/news/2016-02-04/credit-suisse-plunges-25-year-lows-after-posting-enormous-58-billion-q4-loss
Congress Wants To Turn The US Postal Service Into A Bank (2-4-16) SMC
Big Short Guy Says China’s Banking System Is Near Implosion (2-4-16) CNBC
The Fed Wants to Test How Banks Would Handle Negative Rates (2-2-16)
Too Big to Fail Is Still Very Alive, Here’s Why (2-2-16)