Sunday, June 19, 2016

It's a bank run; Brexit isn't the problem facing financial markets, it is insolvency of European banks

"...As a result of savings and spending imbalances, none of the core Eurozone states can stand on their own.  ...Italy is a basket case, where non-performing private sector bank loans officially amount to nearly 20% of GDP.  Substantially, Germany’s private sector savings are loaned to the governments of, and businesses in, France Italy Spain Portugal and Greece. None of these governments are able to repay German savers, nor are they able to roll over increasing debts indefinitely. Furthermore, bad debts are piling up in their private sectors...


Caught in the middle of these imbalances are the private sector banks. Because of the scale of these problems, it is no longer a patch-and-mend issue, but a serious systemic problem. The European banking system has been struggling for survival ever since the Lehman crisis, reflected in the dismal performance of share prices for nearly all the major banks.

Since this time last year, UniCredit, Credit Suisse and Deutsche Bank have seen their share prices more than halve. Worryingly, the crisis lows of last February, when the Italian banking system’s current difficulties began to surface in the financial press, are being breached.

Analysts at Morgan Stanley are also worried. According to a recent article published by Reuters, they believe that UniCredit and Deutsche Bank may struggle to pay coupons on their Additional Tier 1 capital, or contingent capital bonds (cocos). Morgan Stanley added that cocos issued by Credit Agricole, BNP Paribas, and Credit Suisse could also be at risk.

Similar findings in the US;

The other evidence of banking woes is the flight of investment capital into government bonds from cash and deposits held within the banking system, so much so that Germany’s 10-year bund now carries a negative redemption yield.

Europeans are moving savings from risky banks
and buying government bonds for safety,
which will happen in America and elsewhere soon enough

The flight into tangible bonds is so pronounced, that €400bn of investment grade corporate bonds are also on negative redemption yields. Market commentators are blaming this on fear of Brexit, but one look at the financial condition of the European banks tells us a different story. The banks must be struggling with deposit contraction on their balance sheets, fuelled by a combination of negative interest rates and systemic fears, at a time when their loan books are burdened with bad and irrecoverable debts. 

The world's largest banks are losing deposits

It looks like the modern equivalent of an old-fashioned run on the banking system, led by the pension and insurance companies, which are becoming increasingly concerned about leaving balances with the banks.

"Pension and insurance companies" first,
individual savers who have no idea what is actually happening, last

Even though the ECB’s Mario Draghi has committed to do “whatever it takes,” the Eurozone has become a dangerous place for savings and investment.

Which is spreading to America etc...

Whatever the outcome of the Brexit referendum next week, it would appear that nothing can stop a systemic crisis developing in Europe. The two issues are unrelated, though Brexit could be blamed as a trigger. Brexit will come and go, but a European banking failure will remain with us, whatever happens on June 23rd."

Saturday, June 18, 2016; The percentage difference between how bank stocks are performing relative to the 500 stocks in the S&P '500'

Saturday, June 18, 2016; "We are heading for a crisis that will be exponentially worse than 2008"

Wednesday, June 8, 2016; Bank Stock Relative Performance = Our Banks are the Financial Market and the Federal Reserve is owned by its Member Banks = Rigged Economy

A couple reasons Why the Federal Reserve and other central banks won't let financial markets falter and some recent chart and pic porn

Sam Zell selling real estate