EU Banking Mayhem, One Bank at a Time, then All at Once
Investors are not amused.
The European banking crisis simply doesn’t let up. Currently, the big two German banks are grabbing the headlines away from the Italian banks, due to their size and the damage they could do to the global financial system. Other banks are in bigger trouble still, and some have already collapsed, with bailouts and bail-ins getting lined up.
Deutsche Bank had to endure a horrendous Monday after it was leaked on Friday that Merkel had refused to entertain bailing out the bank before the general elections a year from now. Merkel’s popularity has gotten broadsided recently, and bailing out bank bondholders with taxpayer money is just not popular at the moment.
Then Commerzbank, in which the government already owns a stake of 16% as a result of the bailout during the Financial Crisis, graced the headlines with leaks that it would lay off 9,000 employees, nearly one-fifth of its workforce. This will cost about €1 billion, according to the sources. To pay for it, the bank will scrap its dividend for 2016 to reduce the bleeding and preserve capital, in what is turning out to be the hellish environment of negative interest rates.
We’ve been writing about the European banking crisis for a long time, it seems, as it drags on, and meanders from one country to another, and sometimes we write about it in an amused fashion because we’ve got to keep our sense of humor in all this gloom.
But investors who believed in all the hype and in Draghi’s promises and in Merkel’s strength and in the willingness of all of them to do whatever it takes to protect bank bondholders and stockholders, and who believed in the miracle of Spain’s recovery, and in Italy’s new government and what not – well, they’re not amused.
For them, it has been bloody. The global financial crisis got swept under the rug. Then the euro debt crisis took down some banks at the periphery, and taxpayers stepped in to bail out the bondholders, mostly, and a lot more things got swept under the rug. But the problems weren’t solved. And as the decomposing assets under the rug kept exuding their pungent odor, investors held their nose and played along for a while.
But now it’s just getting worse. And investors are wondering what exactly is under these rugs – or maybe they’d rather not know for it’s too ugly to behold. And every time someone does look, for example at the Italian banks, they find even bigger problems that have started to metastasize.
This banking crisis has the potential to transmogrify into a financial crisis. All it takes is for one of the big ones to suddenly topple. The flow of credit would freeze up instantly. In an economic system that depends on credit, and whose lifeblood is credit, such an event is a financial crisis.
The problem isn’t restricted to a couple of Italian or German banks. It’s deep and wide.
Here are the 29 banks in the ESTX Banks Index of Eurozone banks (so Swiss and UK banks, for example are not included). It shows the percentage drop from their 52-week high. But for some of these banks, particularly for Italian and Portuguese banks, that 52-week high was just about last year’s 52-week low, so relentless has their decline been over the years. Some of them had already been reduced to penny stocks years ago, and for them, in euro terms, the biggest losses occurred back then. So these mayhem banks, color coded by country:
If a bank stock plunges from €0.04 to €0.01 over the 52-week period, such as Banco Comercial Português in Portugal, it has been toast for longer than 52 weeks, and the percentage plunge is essentially meaningless because shares were worthless to begin with.
The shares of five of these banks trade under €1. Another 8 banks trade under €3. These 29 banks form a big part of the European financial system. It includes some of the world’s largest banks, such as Deutsche Bank, Societe Generale, and BNP Paribas. It includes a slew of other “systemically important financial institutions,” such as Unicredit, ING, and Santander.
They’re troubled at the same time. The can has been kicked down the road for years. Now negative interest rates appear to have inadvertently crushed the can.
So when will Merkel buckle? Read… Deutsche Bank in Free Fall. Shares, CoCo Bonds Plunge. Merkel Gives Cold Shoulder on Bailout. Bank Denies Everything
Deutsche Bank Is Going Under: The Real Reason Germans Were Told To Prepare For A National Crisis?
There is a very real possibility that Deutsche Bank is going down.
If the most prominent bank in Germany fails, the effect on Europe will be profound, and I don’t think the United States will escape the effects. The ripples will turn into a tsunami as they travel across the Atlantic. Already, the bank’s troubles have stressed the American stock market.
Angela Merkel has stated that Deutsche Bank will not be getting a bailout from the European Central Bank – the lender of last resort for European banks.
The Department of Justice recently issued a $14 billion fine to the bank to settle a mortgage-backed securities probe…and the bank has no intention of paying.
“Deutsche Bank has no intent to settle these potential civil claims anywhere near the number cited,” the company said in a statement early Friday in Frankfurt. “The negotiations are only just beginning. The bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amounts.”(source)
Deutsche Bank shares fell alarmingly this morning on the news that Merkel won’t support the bank.
Deutsche shares fell as much as six percent to €10.67 in early Monday trading, the worst performance since 1992.
The bank has lost over 52 percent of its value since January and over 56 percent in the last twelve months. Earnings per share fell as much as €6.The collapse has been prompted by a report in the German magazine Focus that said Chancellor Angela Merkel has ruled out any state assistance for the bank next year.
Merkel also declined to provide help to Deutsche Bank in its legal battle with the DoJ. The Frankfurt-based lender may be fined up to $14 billion over its mortgage-backed securities business before the 2008 global crisis, the magazine reported. The article said Merkel made her views clear in talks with Deutsche CEO John Cryan. (source)
Could Germany be considering a bail-in instead of a bail out? Is this why Germans have been told to stockpile food and cash in case of a disaster hitting the country?
According to Investopedia:
A bail-in is rescuing a financial institution on the brink of failure by making its creditors and depositors take a loss on their holdings. A bail-in is the opposite of a bail-out, which involves the rescue of a financial institution by external parties, typically governments using taxpayers money. Typically, bail-outs have been far more common than bail-ins, but in recent years after massive bail-outs some governements now require the investors and depositors in the bank to take a loss before taxpayers.
Are millions of Germans about to see their cash stolen by the government to prop up Deutsche bank?
It’s happened before. The Bank of Cyprus took almost 40% of depositors cash to keep the bank afloat and there was nothing they could do about it. Assets were frozen and ATM machines were not refilled. (source)
Is this what’s ahead for the people of Germany? As I said just a month ago:
We’ve seen this before.
If you’ve been following collapses around the world for the past few years, you know that right before all heck breaks loose, the government issues a half-hearted warning along the lines of, “You’re on your own now.” But by then, it’s already too late. People who try to prepare after the government tells them to will be dealing with limited supplies as everyone else tries to get prepped too.
Will Germany become the next falling domino in the collapse of the Western world?
The lesson that we can take from this is that being prepared far in advance of a collapse is the wisest course of action. If you stock up on emergency food, water, and other vital supplies before the crowd, you’ll do so at better prices with better options. Last summer, our own government issued 2 warnings to the American people to get prepared, but very few people took it seriously.
Don’t wait until it’s too late.
About the Author
Daisy Luther is a freelance writer and editor. Her website, where this article first appeared, offers information on healthy prepping, including premium nutritional choices, general wellness and non-tech solutions. You can follow Daisy on Facebook and Twitter, and you can email her at firstname.lastname@example.org