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Business/Finance See other Business/Finance Articles Title: Do NOT Ignore the Euro-Bank Crash Do NOT Ignore the Euro-Bank Crash Mike Larson | Thursday, February 4, 2016 at 4:22 pm Get a load of these year-to-date losses in the massive euro-banks that trade here in the U.S.: Deutsche Bank (DB), down 29.8% Credit Suisse (CS), down 31.4% HSBC Holdings (HSBC), down 14.8% Barclays PLC (BCS), down 21.1% UBS Group (UBS), down 20.6% Royal Bank of Scotland Group PLC (RBS), down 20.1% Banco Santander (SAN), down 16.6% These aren’t tiny banks, or obscure companies I’m cherry-picking to make a point. They are some of the largest banks in the world. Slightly different methodologies yield varying rankings. But ranked by assets, Barclays is the sixth-largest in the world, Deutsche Bank is the eighth-largest, RBS is the 12th largest, and Santander is the 17th, according to research firm Accuity. I bring this up because many analysts and portfolio managers who come on CNBC, or who are quoted in the print press, talk about the energy markets. They keep telling viewers and readers that outside of energy, things don’t look too bad. Credit Suisse was among the European banks hardest hit today in the markets. I completely disagree. I’ve been flagging the poor action in these and other mega-banks for several months, and warning that it represents a spreading sickness. It’s gnawing away at the credit and equity markets behind the scenes, and becoming too big of a problem to ignore. Think about it: Deutsche Bank’s U.S. shares are now trading for less than they did at the depths of the Great Recession in 2008-09. Credit Suisse’s U.S. shares just sank to the lowest level since 2002. The catalyst was another round of horrendous quarter results. CS lost a whopping 5.8 billion Swiss francs ($5.8 billion) in the last three months of 2015. That was a huge swing from the year-ago profit of 691 million francs ($695 million), and the biggest loss in any quarter since the credit crisis of 2008. It’s slashing another 4,000 jobs, and writing down the value of assets to reflect their diminished value. There are a lot of reasons for the weakness. Negative interest rates are crushing margins. European banks are large relative to the size of their home economies, making it tough to bail them out if they get into trouble. In addition, bad loans have been piling up and opaque derivatives bets are raising concerns among investors. Many of these banks are also paying out billions of dollars in fines and penalties as part of huge settlements related to market manipulation, sketchy mortgage practices, and other alleged transgressions. “Add it all up and you have the potential for Black Swan-style events.” Add it all up and you have the potential for Black Swan-style events – bank meltdowns that shake confidence even further. After all, it happened with U.S. banks here during our credit crisis. So at the risk of sounding repetitive, this is not the time for placing aggressive upside bets. It’s a time for caution and prudent risk-protection measures. Let me hear your opinions now. What’s dogging these European mega-banks and how concerned should we be here in the U.S.? Are you getting flashbacks to 2007-09, when several U.S. lenders and banks plunged in value, or is it just me? What do you think the stock and bond markets will do in response? The discussion section is further down on this page. Poster Comment: Ignore the Euro crash at your own risk. Post Comment Private Reply Ignore Thread
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