Killing of Europeans banks : opportunities and risks

Published 08-08-2016, 06:46 pm
Updated 09-07-2023, 04:02 pm
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BAC
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JPM
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LLOY
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French version and indian version :

- 26.19 %, is the collapse of the index Stock Europe 600 Banks for 1 year - which measure the equity market performance
of 600 major European banks -.

From HSBC Holdings Plc (LON:LON:HSBA) - UK banking star - account for 16.62 % of the weight of this indicator.

It is a chainsaw massacre in the European banking sector in 12 months, the financial markets in connection with the accumulation of legal uncertainties, financial, economic and geopolitical.

Brexit, private debt, public debt, low interest rates eroding margins, sluggish growth pattern upset by technological change increases and regulations accompanying the stall traded bank securities.

Besides the legitimate concerns about bad loans / rotten and solidity of Italian banks, Banca Monte Paschi di Siena (BMPS) and Unicredit (MI:MI:MI:CRDI) mainly have clearly failed the last stress test of the European Banking Authority (EBA).

These results were made public July 29, 2016 in the evening, at the close of trading by its chairman Andrea Enria.

Nobody really knows - sensitive issue - there really has in mechanical lending lines and receivables of Italian and European banks :

- $ 887 billion of non-performing loans (definition : at least 1 quarter lag on the payment of claims in Europe) as a pointing ECB October 27, 2014 ;

- $ 1.18 billion of non-performing loans in Europe according to the latest tally by the ECB in August 2016 ;

- $ 399 billion of non-performing loans, including $ 2.36 billion rotten credits in Italy according to a tally by the EBA releases AWP agencies and AFP August 5, 2016.

If investors focus on Italy, the reasons - 33% of bad loans and rotten eurozone are concentrated in Italy - are in the order of mistrust of the banking system operating at the old 700 organizations banking spread in the Italian regions to the very special local culture, share and each cling to a share of the Italian cake.

Italian local authorities have had the opportunity to change everything but resistance from powerful local lobbies, cowardice and procrastination dominate.

As a funder of the real economy, banks are also at the forefront of the causes of the poor economic health in the European Union (EU) and hence the high rate of unemployment.

They crystallize and symbolize - rightly or wrongly - distrust and opacity especially since the trauma of the subprime crisis,
the bankruptcy of Lehman Brothers, the bailout by the European taxpayers money from troubled banks and the deep economic crisis that ensued.

The finance professor at the University of Lausanne (Switzerland), Diane Pierret, does not hesitate to question the veracity of the EBA tests on the grounds of obsolete data submitted by banks - obscuring the collapse of market capitalization in December 2015 - and thus distorting the results in favor of banks in an interview with journalist Ram Etwareea letemps.ch for the August 1, 2016.

The Doctor (Ph.D.) in econometrics and statistics Diane Pierret believes it will take $ 977.6 billion of capital needed to bail out European banks so that they comply with the new regulations.

Who will pay ? Shareholders ? Taxpayers ? So many questions remain outstanding plunging observers in the dark.

The excellent research paper Jean-Pierre Chevallier - independent monetary economist - from 3 August 2016 entitled Leverage of big banks goes further in his helpful analysis stating the following :

- Core Tier 1 banks - ratio measuring the multiple of the debt of banks relative to their equity - which must be greater than 8 is followed only by four US banks (Citigroup (NYSE:NYSE:NYSE:C), Goldman Sachs (NYSE:NYSE:NYSE:GS), Wells Fargo (NYSE:NYSE:WFC), Bank of America (NYSE:NYSE:NYSE:BAC)).JP Morgan Chase (NYSE:NYSE:NYSE:JPM) is 7.83.

The former director of the Fed - the US Federal Reserve - Alan Greenspan enacted this prudential rule of conduct for banks.

He demanded that the total bank debt does not exceed 12.5 times their equity (appointed leverage).

Deutsche Bank (DE:DE:DE:DBKGn) holds 36.49 times more debt than equity. Societe Generale (PA:PA:PA:SOGN) is at 35.97. UBS is 31.7. BNP Paribas (PA:PA:PA:BNPP) is 29.85. BPCE / Natixis to 26.51.

BPCE / Natixis to 26.51. The Credit Agricole (PA:PA:CAGR) Group is 23,12. Credit Suisse (SIX:SIX:SIX:CSGN) is 21.1.

By comparison, the best ranking - Citigroup - is 9.63.

A selection of balls that hang EU banks since 2008.

A journey marked by intermediate stampedes as warnings on net income and solvency of Commerzbank (DE:DE:DE:CBKG) July 25, 2016, thousands of court disputes unresolved the powerful Deutsche Bank, Credit Suisse profitability challenges, alarming problems Banca Monte Paschi di Siena etc.

The stock performance of European banking caps for 1 year :

- Banca Monte Paschi di Siena : – 79 % ;

- Unicredit : – 60 % ;

- Mediobanca : – 30 % ;

- Banco populare : – 76 % ;

- Commerzbank : -43 % ;

- Deutsche Bank : – 46 % ;

- Royal Bank of Scotland (LON:LON:LON:RBS) : – 40 % ;

- Barclays (LON:LON:LON:BARC) : – 30 % ;

- HSBC, the best, : 0 % ;

- Lloyds Banking Group (LON:LON:LON:LLOY) : – 25 % ;

- Bankia (Spain) : – 36 % ;

- Santander (MC:MC:SAN) : – 18 % ;

- CaixaBank : – 29 % ;

- BBVA (MC:MC:MC:BBVA) : – 24 % ;

- Credit Agricole SA : – 38 % ;

- BNP Paribas : – 26,5 % ;

- Societe Generale : – 34,3 % ;

- BCP (Portugal) : – 71,87 % ;

- Alpha Bank (Greece) : – 28,28 % since january ;

- Eurobank : – 55,10 % since january.

British banks were shaken mainly because of Brexit and the new regulations - on the separation of retail banks and investment banks in equity as of January 1, 2019 -.

This will increase the accounting invoice $ 163 million a year on average in 2019 in the balance sheet of British banks following the reported data of the Bank of England (BoE).

As for HSBC, it remains a case apart knowing - in great financial shape - thanks to a diversified financial strength on 5 continents and all-round development in the Asian dynamic markets.

The famous banking adage too big, too fail - that is too powerful to fail - remains in force despite the hardening posted rules : the investor will always end up paying one way or another the lifestyle financers of the economy.

To be more clear, on the stock market - and regardless of the rumors and negative facts related - bank assets are almost safe security if we choose the right time of investment and good value.

For illustration, in the light of economic omnipresence of the French State on the Hexagon linked to its cultural weight, organizational, fiscal, financial, political, security and history - bank managers, for the majority of old senior officials, almost follow the finger and the eye directives of the French government -.

This fact allows investors almost total security of banking assets in France.

If dropped, it is the investor / French taxpayer who will pay.

I suggest to purchase, excluding exceptional event, shares of French banks in the medium term and long term when an opportunist drop of 10% of their market capitalization will manifest in stock prices.

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