The (Second) European Banking Crisis

[Basil II the B.S]

This is one of those times when I say ''I told you so''.

google translated:
German Bank Chief Economist Calls 150 billion bailout

The chief economist of Deutsche Bank calls a multibillion dollar bailout for European banks. The institutions should be equipped American-style with fresh capital. At that time the government had stepped in 475 billion dollars. "In Europe, the program must not be so large. With 150 billion euros can be European banks recapitalize," said David Folkerts-Landau of the "Welt am Sonntag".

In particular, Italy and the condition of local banks prepare the experts worried. The publicly rumored capital requirement of EUR 40 billion is expected to be calculated more conservatively, so Folkerts-Landau. The bank rescue it deems such urgency that it it also takes a possible break with the rules of the new Banking Directive in purchasing.

This prohibits State aids when previously have done their part to save not private creditors and shareholders. Such a bail-in is not politically feasible because it would take a lot of private savers in Italy and possibly even also could elsewhere trigger an onslaught of creditors and customers of the banks. "Strictly to keep yourself on the rules would cause greater harm than they suspend" said Folkerts-Landau.

The decline in bank stocks is only the symptom of a much larger problem, namely a fatal combination of low growth, high debt and a proximity to dangerous deflation. "Europe is seriously ill and needs to address very quickly the existing problems, or face an accident," said the chief economist.

http://www.welt.de/finanzen/article1...illiarden.html

Hey, do you remember when our politicians had fixed the system?
Neither do I.

We are back at the socialized losses, private profits that isn't free market, nor socialism.
It's simply redistribution of wealth from the middle and working class to the elite, and Folkers Landau is indeed a multi-millionaire banker.
How about the bailout is taken from his money?
Nah. Btw this is one of those top tier economists that said refugees would benefit the German economy. The German economy or his pockets? We'll see. For now, he gambled in financial markets, lost and wants a refund from you.

Can we please jail these people and throw away the key before the turn Europe into a pile of ashes?

[Knight_Of_Ne]

To be fair with the Italian banks, there's a lot of mitigating factors that have made it difficult for them to properly shore themselves up.

I mean, correct me if I'm wrong but, they are heavily intertwined with an Italian governments debts and a fairly stagnant economy this century so far, plus its taking them forever for much needed legal reforms regarding debt in Italy to have any effect. None of which helps them shore up and find the necessary capital. This certainly isn't helped when the markets are rocked by Brexit and the possibility of China devaluing it's currency despite promises otherwise.

But all in all, it doesn't look good. Hopefully the stress tests every bank had to go through helped shore them up where necessary enough to see this through, hopefully.

[paleologos]

...
This is one of those times when I say ''I told you so''.
...

You are neither the only, nor the first to say so.

...
Hey, do you remember when our politicians had fixed the system?
...

You mean "fixed" as in "rigged", right?

...
We are back at the socialized losses, private profits that isn't free market, nor socialism.
It's simply redistribution of wealth from the middle and working class to the elite...

I would call it "socialism" for the "capitalists" and fiscal "discipline" for everyone else, but yes, that's what it's all about.

[fkizz]

Schauble was saying 2-3 weeks ago that Portugal needed a new bailout.. Seems they are getting really nervous.

Also some EU bureocrats with a mysterious agenda are trying to push us some penalizations for lack of fiscal discipline.. I wonder if they will push such things for Germany aswell? I mean the higher the power the higher the responsability right?

[paleologos]

I wonder if they will push such things for Germany aswell? I mean the higher the power the higher the responsability right?

Never gonna happen.
When Germany plays darts, they throw the dart on a blank wall and then paint the bullseye around where the dart landed.
These people are just never in the wrong (or so they believe).

[fkizz]

Never gonna happen.
When Germany plays darts, they throw the dart on a blank wall and then paint the bullseye around where the dart landed.
These people are just never in the wrong (or so they believe).

People can't play dumb forever. It's getting obvious some "nice people" in EU are trying to find somewhere to get fast cash to Deutschbank.

[Love Mountain]

\ I mean the higher the power the higher the responsability right?

When has that ever been the case fkizz? All I've seen is the higher the power, the easier to game the system.

[Basil II the B.S]

Actually it isn't Deutsche Bank turn yet, for now it's Monte dei Paschi, 4 smaller Italian banks and Bremen Landesbank. However most German banks are going to be in trouble soon.

DB's stock will eventually go below 10$ and that's when people will start dumping it en masse, causing mass de-capitalization of an already under capitalised bank. Then Schaeuble will activate the bail in recent treaty and Germans will see their savings vanishing over night.

[caratacus]

Prime Minister Matteo Renzi said on Wednesday, that the difficulties facing Italian banks over their bad loans are miniscule by comparison with the problems some European banks face over their derivative exposure.

Italy's bad loan woes tiny compared to derivatives problems elsewhere - Renzi Reuters - Wed Jul 6, 2016
http://uk.reuters.com/article/uk-ita...-idUKKCN0ZM1YL
Italian bank shares have crumpled over the past 10 days, hit by anxiety over the sector's pile of non-performing loans, totalling some 360 billion euros (£309 billion), and reviving fears of possible financial disaster in the eurozone's third-largest economy.

Speaking at a joint news conference with Swedish Prime Minister Stefan Lofven, Renzi said other European banks had much bigger headaches than their Italian counterparts.

"If this non-performing loan problem is worth one, the question of derivatives at other banks, at big banks, is worth one hundred. This is the ratio: one to one hundred," Renzi said.

Now he didn't actually mention Deutshe Bank, but everybody knows who he is referring to. At one point, it was estimated that Deutsche Bank had $64 trillion worth of exposure to derivatives contracts. That's about 16x the size of the GDP of the entire nation of Germany!!!

The failure of this bank would be a huge hit to the World economy, not just Germany or the EU. But I'm thinking it won't be the Italian banking problems that will tip the scales,"too big to fail" and all that. But exposure to the cracks in the bubble of the Chinese economy, for which there is no outside controlling influence. That surely is the big elephant in the room that nobody wants to talk about.

[Basil II the B.S]

Update:
http://www.zerohedge.com/news/2016-0...xpayer-bailout

Banco Novo (the ''good'' bank split from Banco Espirito Santo in troubles) is now in trouble and will need a bailout.

[fkizz]

Update:
http://www.zerohedge.com/news/2016-0...xpayer-bailout

Banco Novo (the ''good'' bank split from Banco Espirito Santo in troubles) is now in trouble and will need a bailout.

Oh well. I guess family espirito santo will be hunted by our justice for real even if for the wrong reasons.

Still this is the state of our banking system after TROIKA shock "therapy". I hope other countries learn from this.

When has that ever been the case fkizz? All I've seen is the higher the power, the easier to game the system.

I was being partially facetious, but sadly you are correct. There are some opposite cases where responsability does exist, but such people end up being thrown away and isolated sooner or later, to let the more corrupt ones do their "work" in peace.

[Gallus]

I said it when the first bailout happened and I'll say it again - we should let these banks to collapse. If my company goes bankrupt I won't recieve a single euro of bailout money, why should the banks get billions? They made poor business decisions, let them deal with it and if they can't let them die.

[conon394]

I said it when the first bailout happened and I'll say it again - we should let these banks to collapse. If my company goes bankrupt I won't recieve a single euro of bailout money, why should the banks get billions? They made poor business decisions, let them deal with it and if they can't let them die.

I don't disagree - I think the US needs to look at breaking up the too big to fail banks and letting banks fail once the impact is more manageable. But the EU please just band-aid this until after the US election, I really don't want to have to move to Canada. I don't follow much on EU banking so Basil do see yourself as realist in this (your forecasts) or a pessimist - what is the rose colored glasses option?

[Condottiere 40K]

Might explain a lot of restructuring going on in some European banking conglomerates.

[Timoleon of Korinthos]

I don't see what's all moral outrage about. A bank executive asking for banks to be bailed out without bailing in creditors and depositors first does not equate to his wish being granted. Actually, the new European legislation on the matter has already taken effect in the case of an Austrian bank, Heta Asset Resolution. I think that what we are going to witness in the near future is a pattern of massive haircuts on deposits, because that's the only way to bring the balance sheets back into order definitvely.

[RNV]

I don't see what's all moral outrage about. A bank executive asking for banks to be bailed out without bailing in creditors and depositors first does not equate to his wish being granted. Actually, the new European legislation on the matter has already taken effect in the case of an Austrian bank, Heta Asset Resolution. I think that what we are going to witness in the near future is a pattern of massive haircuts on deposits, because that's the only way to bring the balance sheets back into order definitvely.

In that case though there is a trial going on if I'm not mistaken and it looks like bondholders are going to win it. I might be confused with the similar case that happened in the Netherlands though.

Also, Bail-in is fundamentally a limited default... it's not very constitutional in many country, for example, in Italy it is unconstitutional.

Honestly, moral hazard of bankers is solved by making them pay with jail, if there are crimes, and their personal wealth together with the bank. My opinion is that as central bank and vigilance authorities are responsible for the vigilance banks should be nationalised when they need bail-out with money from the central bank. It's not a waste of tax-payer money since banks generate profits and you can still sell them in the future. The waste is when you inject capital without asking anything in return.

Also, the economic and social costs of bail-outs are far lower than those of bail-in.

[Basil II the B.S]

That'd be until people start to panic and empty their accounts..

[caratacus]

This morning one of the the UK’s biggest banks Lloyds Bank, announced they would be closing 200 branches and loosing 3000 jobs, This follows an earlier decision in 2014 to axe 200 branches of the bank.

This action is largely being justified now though, because of a Brexit effect. Although it runs contrary to the fact that the UK economy actually grew by in the months leading up to the referendum. The decision is given even more incredulity, by the fact that this bank had a 2.5 billion pre-tax profit for the half year to the end of June 2016!

Lloyds cuts a further 3,000 jobs and doubles branch closure plan
BBC News http://www.bbc.co.uk/news/business-36911896
Chief executive Antonio Horta-Osorio warned that he expects a "deceleration of growth" following the UK's decision to leave the EU.

The Group said the increased cost-cutting was as a result of the change in how people do their banking, and due to the chances of interest-rates staying low in the wake of Brexit.

But Mr Horta-Osorio emphasised that Lloyds was in a "strong position to withstand the uncertainty" created by the vote.

I am therefore of the opinion that this bank is attempting to cushion itself from the effects of an imminent European banking crisis, probably stemming from a partial collapse of Deutsche Bank. Because as we know, all banks are intertwined with one another. Its not so much the UK’s withdrawal from the UK that will effect Lloyds, but the implications this will have on European Banks such as Deutsche Bank

In fact Lloyds Banking Group shares fell 1.8 per cent in June 2016 along with those of other UK banks, when Deutsche Bank's share price fell to its lowest-ever value..

European banking shares take a hammering as Deutsche Bank falls to its lowest ever
City AM Thursday 16 June 2016 http://www.cityam.com/243443/europea...che-bank-falls

European banking shares dropped today - with Deutsche Bank's share price falling to its lowest-ever in early trading.

Deutsche shares fell as low as €12.94 , 2.5 per cent lower, while the UK's big four lenders were also hit, with HSBC dipping 1.1 per cent to 420.95p, Barclays falling 2.5 per cent to 157p, Royal Bank of Scotland falling two per cent to 212.6p and Lloyds Banking Group falling 1.8 per cent to 61.9p.

[RNV]

I think that there are two parallel trends in the banking sector now:

1) technology, especially internet banking, made branches and lot of employees unnecessary.

2) world economic outlook is grim (brexit is just an excuse, or at least not the sole or main reason), especially in the eurozone things are degenerating quickly.

So yeah, things are going pretty damn bad for banks, I'm not surprised by that decision.

[caratacus]

I think that there are two parallel trends in the banking sector now:

1) technology, especially internet banking, made branches and lot of employees unnecessary.

2) world economic outlook is grim (brexit is just an excuse, or at least not the sole or main reason), especially in the eurozone things are degenerating quickly.

So yeah, things are going pretty damn bad for banks, I'm not surprised by that decision.

Yes, but another effect is record low interest rates which reduces the capacity of banks to make money. Global interest rates remain at very low levels currently and in some markets are even negative. If market conditions change further banks have warned that they might start charging interest on credit balances.

In this article about the bank Santander in the UK, published yesterday. It states that the bank will not start charging yet but have changed their terms and conditions to enable them to do so in the future.

Santander able to implement no-notice charges for savings
Bank’s UK arm says it has terms in place to charge some customers to hold their deposits but does not intend to do so

https://www.theguardian.com/business...vings-deposits

It should be noted that the last paragragh refers to LLoyds Bank. So yeah nothing to do with Brexit, but more about the uncertainty that the European banking business is experiencing.

"On Thursday, Lloyds Banking Group is expected to set out how it intends to rein in costs in response to pressure on its profit margins caused by a rate cut, amid expectations from analysts that this will lead to further job cuts and branch closures.

Lloyds admitted in February that it was already ahead of schedule in a plan to cut costs by £1bn over the three years to 2017 by cutting 9,000 jobs and closing 200 branches. Some 7,300 roles have already been lost and 150 branches shut, and analysts have said that more need to go to cope with sustained low interest rates."

Also the fact that the Guardian and these "analysts", were so accurately able to predict what Lloyds was going to do a full 24 hours before the official announcement. Does raise a serious question about confidentiality in the financial sector. Especially when the possibilities of benefiting from insider knowledge through share trading, has been one of the most serious trading irregularities in the business.