Too big to fail?


When looking at the state of the economy, a healthy banking system is generally a pretty good indicator. Look at the parlous state of global banks. This but a small selection but it is no wonder Frau Merkel is concerned about her beloved Germany. Its two venerable financial giants, Deutsche Bank and Commerz Bank are 2 notches above being declared non investment grade. Personally I don’t put much if any value in the ratings agencies. They are generally rearward looking. Markets are a far better judge and jury.

We often look to the biggest country in the Eurozone as the power house. However the share price performance since Jan 2010 show that the German banks are amongst the worst performers. So despite Lloyd shaving the same BBB+ rating to Deutsche Bank it has outperformed its German neighbour even including the belting on the Brexit vote.

Interestingly the Italians have just fired a E40bn bailout fund for its banks. We made the case that these bailouts contravened the ECBs own rules. Public recapitalisation of insolvent  banks by member states is not allowed at this juncture but I doubt that will get in the way. Zero Hedge sensibly argues that the E40bn is the collective write down needed on E200bn of sour loans. Once again taxpayers will be forced to pay for another bailout. The Italians are already in denial wiuthe the head of their banking association saying the Italian banks can manage on their own.

Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s