Lloyds Bank Group&a;nbsp;&a;nbsp;&a;nbsp; +19.39%
UniCredit&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp; +18.69%
Commerzbank&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp; +15.00%
BNP Paribas&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp; +&a;nbsp; 9.58%
Deutsche Bank &a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp; +&a;nbsp; 8.31%
Barclays &a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp;&a;nbsp; +&a;nbsp; 7.07%
Santander&a;nbsp; &a;nbsp; &a;nbsp; &a;nbsp; &a;nbsp; &a;nbsp; &a;nbsp; &a;nbsp; &a;nbsp; &a;nbsp;+&a;nbsp; 3.24%
UBS&a;nbsp; &a;nbsp; &a;nbsp; &a;nbsp; &a;nbsp; &a;nbsp; &a;nbsp; &a;nbsp; &a;nbsp; &a;nbsp; &a;nbsp; &a;nbsp; &a;nbsp; &a;nbsp; &a;nbsp;-&a;nbsp; &a;nbsp;0.95%
Societe Generale&a;nbsp; &a;nbsp; &a;nbsp; &a;nbsp; -&a;nbsp; 7.73%
This table of share price returns on a year-to-date basis reveal that shares in France&a;rsquo;s third-largest bank by market capitalisation have been the worst performer of all major European banks in 2019 and have fallen by 50% since a peak level booked in May 2019. Following the UK start up, Metro Bank Soc Gen is the second-worst performer on the Stoxx 600 Banks Index.
Now one can point out key balance sheet facts about Soc Gen, i.e. its capital ratio fell to 11.2% in Q4 2008 from 11.4% 12-months ago. This made it the second-lowest among Europe&a;rsquo;s largest banks that have reported year-end numbers.
However, this issue which haunts the French lender is a challenge that has cast a shadow across the entire European banking sector for several years now and which the European Central Bank (ECB) sitting at its centre.
The ECB may have announced an end to its asset purchase programme prematurely as its growth forecast for the Eurozone are looking shabby and it has recognised a pressing need to keep government finances and bank balance sheets afloat by continuously flooding the system with cash.
It will be interesting to read between the lines from the comments of Peter Praet, member of the Executive Board of the ECB when he speaks today as his speeches often contain pointed indications on the future possible direction of monetary policy.
I take an interest in such comments as I have argued for many years that the finances of the Eurozone are unsustainable. We know all too well the tragic story of the Greek economy was squeezed and now the region faces mounting pressures in Italy for increased spending, at a time when Italy is in recession. That effectively is another nail in the coffin of the discredited Stability and Growth Pact.
The sad truth is not for those who have less than a strong constitution as the ECB has been guilty of organising a form of banking union by means of smoke and mirrors.
When the European banking crisis hit hard in 2009 the ECB found a solution by not subjecting the regions banks to too rigorous a stress test. In comparison to the aggressive stress testing conducted by the Fed, the Europeans were virtually sent off to have relaxing spa weekend.
The next step was to flood the banking system with incredible volumes of ultra-cheap cash. &a;nbsp;These were known as Targeted Longer-Term Refinancing Operations (TLTRO&a;rsquo;s) and were described as a non-standard monetary policy tool used by the ECB. Through TLTROs we provide long-term loans to banks and offer them an incentive to increase their lending to businesses and consumers in the euro area.
However, instead of lending these funds out to the real economy they used it to buy increasing amounts of Eurozone sovereign debt This allowed yields to stay far lower than a natural market would have dictated. In effect beginning the great Eurozone distortion.
One may argue that I am being ungrateful as the actions of the ECB has created an opportunity to enjoy a decade of apparent tranquillity within the Eurozone banking sector and the huge compression of debt spreads over the benchmark issues of Germany at all maturities of the yield curve.
This is, nothing more than a Financial Faustian Pact. There is now, as the respected financial markets commentator and deal arranger Bill Blain of Shard Capital has said a situation where:
&l;/p&g;&l;blockquote&g;&l;em&g;&a;ldquo;...Europe and its banks are now caught in such a co-dependency cycle, the only realistic choice for the ECB is to keep doing it and for investors to keep arbitraging it. Buy European banks and buy Sovereign debt &a;ndash; Why? They might be locked in a deadly embrace&a;hellip; but its&a;rsquo; highly unlikely the ECB will ever let it unwind. ...&a;rdquo;&l;/em&g;&l;/blockquote&g;
It is a system of perfect perpetual motion as cash and debt is cycled and recycled around and around. When one old government Bill or Bond is due to mature, new cash s raised to pay of the old obligation which become due. No wonder the mountain of sovereign debt keeps rising. No wonder the banks all creak when the integrity of a Eurozone sovereign is questioned.
Eurozone banks are awash with Euro denominated sovereign debt. If a sovereign were to default, many banks would be struggling. They cannot even trade their way out the mess as so many banks are finding the money to be made from trading plain vanilla sovereign debt is miniscule.
This really is a collision of real and fantasy world economics. The Eurozone banking system is supported by &l;em&g;&a;ldquo;funny money&a;rdquo;&l;/em&g; except not many are laughing. Eventually the perpetual motion machine will be seen for what it is...a fake and a fraud...then down will come the pillars and walls.
As it stands there are now &a;euro;722 Billion ($816 Billion) of outstanding TLTRO&a;rsquo;s issued by the ECB to banks across the Eurozone. I will leave you to consider what happen if the music stops, if the tide rushes out or any other clich&a;eacute; one cares for.
The money is so interconnected, that if the lending lunacy stops, so will the Eurozone and wider Europe at both a sovereign debt and bank balance sheet level.
That is when the game will be up, maybe by 2021. Then the European project will be confined to the history books.
No... of course it won&a;rsquo;t...as some other crazy scheme will be created.
Stephen Pope ~ MarketMind
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