BANKING SECTOR IS AILING – “CHICKENS COME HOME TO ROOST!”

Bank 18/08/15 27/06/16 18/08/16 % fall in one year
Barclays 274p 121p 161p -41.24%
HSBC 556p 438p 542p -2.5%
Lloyds 80.28p 55.75p 54.20p -32.4%
RBS 340.70p 174.30p 191.60p -43.7%
Standard Chartered 808p 528p 632p -21.8%
Deutsche Bank €28.75 €12.54 €12.56 -56.3%
KBC Group €61.44 €40.24 €49.63 -19.2%
BBVA €8.97 €4.76 €5.23 -41.7%
Santander €5.92 €3.30 €3.79 -35.9%
UniCredit €6.24 €1.91 €2.08 -66.6%
Intesa €3.46 €1.55 €1.91 -44.8%
Monti Dei Paschi €1.94 €0.39 €0.24 -87.6%
Den Danske DKR217.90 DKR165.40 DKR182.60 -16.2%
BNP Paribas €59.34 €36.91 €43.68 -26.4%
Societe Generale €47.22 €26.39 €30.91 -34.5%
Credit Agricole €12.90 €7.12 €8.11 -37.1%
UBS CHF21.69 CHF12.50 CHF13.17 -38.9%
Credit Suisse CHF26.87 CHF 10.21 CHF 11.54 -57.1%
JP Morgan $68.21 $57.61 $65.71 -3.7%
Citigroup $57.55 $38.48 $46.62 -18.9%
Wells Fargo $57.54 $45.01 $48.44 -15.8%
Bank of America Merrill $17.69 $12.18 $15.17 -14.2%
Goldman Sachs $201.18 $139.51 $165.65 -17.17%
Morgan Stanley $37.82 $23.61 $30.25 -20.1%
Tokyo-Mitsubishi Y875 Y456 Y536 -38.7%
Sumitomo-Mitsui Y5473 Y2915 Y3438 -37.2%
         

 

 

They say ‘chickens come home to roost!’  Since the financial credit crisis in 2008/9 the banking sector has been an unmitigated disaster area in terms of investment. In the case of US banks, they have fared a little better than those from the rest of the Western world.  These US banks, with the help of the FED and the DODD/FRANK Reform and Consumer protection act, made an effort to get their act together, rather more quickly than Europe and the UK. 

 

The EU/UK rather ham-fistedly attempted to orchestrate all-purpose regulation with the help of Basel, when the criteria for banks in the UK were totally different from their peers across La Manche. Our banking is, to all intents and purposes, mortgage lending; whereas Europe has other vagaries to deal with. At least 4 years was wasted.  These issues should have been put to bed rather earlier. Cooperation by all means but many forgot that fabulous invention of Alexander Graham Bell – the telephone! It’s still a great invention!

 

Hence the cost of capital for banks and its hugely increased requirement implemented by the authorities to avoid a replication of another banking crisis, has taken its toll. Add the cost of a gargantuan cycle of low interest rates and massive impairment charges for bad debts plus enormous fines for misdemeanours such as FX & LIBOR rigging and PPI repayments has manifestly rocked investors back on its heels. European banks are still short of about €300 billion of much needed fresh capital. Italian, Greek and Portuguese banks are all but squealing and our friends in Germany and Spain are less than comfortable with their lot in life.

 

Rather than just chuck QE indiscriminately at the EU’s economy, the banks are in need of more than a haven of remission. They need capital NOW to avoid another meltdown.  Many think I am being melodramatic, but Europe’s economy looks very brittle.  Whilst its banking system remain vulnerable, a marked recovery is less likely cum or ex-BREXIT! But for the banking sector I suspect that many of the European bourses would be some way ahead in terms of value than they are today.

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