José Luis M. Campuzano (Spanish Banking Association) | The most significant item in the minutes of the ECB Governing Council’s July meeting was the repeated reference to the banking sector. And particularly with regard to the massive beating banking stocks are receiving in the equity markets.
Miguel Navascués | Take a look at the outstanding balances in the ECB’s TARGET2 payments system, which maintains an up-to-date record of the debts and loans each country has with the other. As can be seen from the table below and the subsequent graphics, Italy, where the banks have 360 billion euros of doubtful loans, as well as Spain, have again begun to show signs of weakness.
The European banks are having nothing but trouble in the last few months. And if they needed something else to further cloud their outlook – negative interest rates, meagre margins, increasing capital demands…- doubts have begun to emerge lately over whether the sector can continue to pay the high interest on the so-called CoCos (Contingent Convertible Capital Instruments), contingent convertible bonds.
Higher capital requirements after the financial crisis are pushing up the cost of capital for European banks. The key question is by how much, since the return on equity required in order to compensate investors for the risk they undertake can be difficult to determine because it is unobservable.
Aristóbulo de Juan | This is the huge cost of complacency. You frequently hear Spanish bankers and supervisors repeating a new mantra: “The European banks are worse than ours and their supervision is more lax.” Europe’s oldest bank reveals an NPL ratio of 39%, while Deutsche Bank announces losses of 6.9 billion euros…but can this sort of management be allowed?
UBS | What’s happening? Banks are trading at distressed PE and P/TNAV multiples. Emerging Market/China/ APAC slowdown and oil going to US$30 are potentially triggering a downturn in the credit cycle and concerns over credit/exposure quality in general.
Two fundamental factors have affected bank lending. On the one hand, market doubts over the banks’ ability to generate margins against a backdrop of low and even negative interest rates. And on the other, the indirect impact of current energy and raw material prices on the lenders’ balance sheets.
Ana María Llopis, independent director at Societe Generale explains that “the entity’s share price was at 40 euros before the crisis and now it is around 42-44 euros. So some banks have recovered. Then there are others still at low prices for particular reasons, or because they operate in China or Brazil.”
Fernando Barciela | Is the banking crisis over? I don’t think so. There is a lot of very bad news coming out from some of the biggest European banks these days. Deutsche Bank said on Thursday it would shed 35,000 jobs. The German lender reported a $6.6 billion quarterly net loss. So it will trim its investment banking operations and close operations in 10 countries.