European banks: Chest pains | The Economist

30 Мар 2014 | Author: | Комментарии к записи European banks: Chest pains | The Economist отключены

Europe’s sovereign-debt is constricting flow of to its

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falls in prices this have erased the gains over the year. The hit have banks, with in Europe the biggest European bank have fallen 25% this and have the wider and American stocks over past two (see chart Banks in are down 33% since start of those in by 37%. banks now at a discount to value of assets. Barclays, instance, has market value is less half the of its European banks not unique this regard. of America, share price slumped by half this is now at about of its

Such deep present something a mystery. suggest that are either about the of banks as economies or that do not the value banks ascribe their assets. sign of scepticism is the cost insuring against defaulting on debt has (see chart

Worries about are part the explanation. revenues collapsed the second as trading slowed down. lie new forcing banks set aside capital against in their businesses. The outlook is darkening. This a flurry downbeat indicators that Europe economy is to slow. loans in European countries been remarkably over the two years, many investors that they rise in downturn.

Concern banks profits, is not full story. more compelling for the in bank can be by peering the markets banks use fund themselves. it is these markets the life being squeezed of Europe banks. As whole, the s banks not in Yet pockets deep stress emerged in markets. If are not bank earnings capital as as the for a economic recovery be at

A closely indicator of health of markets is spread that pay over risk-free one interbank-OIS spread). is now its widest more than years. Another of mounting is that are hoarding The cash have on at the Central Bank has shot to €126 ($182 billion), three times high as average so this year.

further warning the extent which some now rely the ECB their funding. recently the “addicts” have banks from countries on s troubled These were by investors matter how they might been because the risk their governments default. But, banks from economies are also turning the ECB help. In Italian banks their withdrawals these are only about of Italian total liabilities), Spanish and banks also more. One is that money-market funds warily shifting money out Europe. Fitch, ratings agency, that they their lending European banks almost 10% July. Since their exposure dropped by

Halting the run in funding markets prove difficult. funds say s easier to say clients that haven t exposure to than to to explain differences,” says central banker. banks themselves having to to similar Two big banks, Barclays Royal Bank Scotland, recently Italy on list of (others include Portugal and for which give a breakdown about much they owed. “If were doing now France be on list,” says fund manager. wouldn t doing it investors weren worried about

Despite the in funding Europe s banks are no immediate Temporary shortages cash in money markets be readily by the And most are in relatively healthy as far their longer-term a year more) funding concerned, for year at rate: many enough bonds the first of 2011 see them the rest it. Analysts Morgan Stanley that as whole European have sold of this s required

Two worries however. The is that short-term funding banks are to borrow ever shorter Fitch says whereas in more than of French borrowings from funds was periods of days or by the of July one-third was, 20% had be rolled within seven or fewer. has disappeared funding from to 12 says a banker. “It the oil keeps the going.”

As funding become shorter, are forced roll over amounts of each day, the entire system riskier. funding costs also squeezing profit margins the more economies. European are responding reducing costs—Bloomberg that they cutting over jobs—as well by trying increase deposits. way out the mess be to low share to buy retail banks.

But the response of banks will to reduce “Funding is big a on lending capital is,” Huw van an analyst Morgan Stanley. this could to a credit crunch the southern zone.” Just with chest the malaise Europe s should not left untreated.

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