econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 10 July 2016

Zombies In Europe

Written by , TrueEconomics.Blogspot.in

Europe's banks have been back in the crosshair of the markets in recent weeks, with new attention to their multiple problems catalysed by the Brexit vote. The equity positions of many banks has been evaporating while non-performing debt has not diminished and, in some cases, even increased. Greek debt has been continued at face value, for example, by continuing to force more debt on that nation so it can continue payments on old debt.

lending.to.greece.380x200

I spoke on the matter in a brief interview with UTV here: http://utv.ie/playlists/default.aspx?bcid=5026776052001.

Now, Bloomberg has put together a (very concise) summary of some of the key problems the banks face:

"Europe's banks have been a focal point of investor skittishness since Britons voted to leave the European Union, but reasons to be worried about financial firms pre-date the referendum. Whether it be the mountain of non-performing loans, the challenge from fintech firms and alternative lenders encroaching on what was once their turf, or rock bottom interest rates eroding margins, the problems facing Europe's lenders are mammoth."

To summarise the whole rotten lot: European banks (as a sector)

  • Cannot properly lend and price risk (hence, a gargantuan mountain of Non-Performing Loans sitting on their books that they can't deleverage out, exemplified by Italian, Slovenian, Spanish, Portuguese, Cypriot, Greek, Irish, and even, albeit to a lesser extent, German, Dutch, Belgian and Austrian banks);

  • Cannot make profit even in this extremely low funding cost environment (because they cannot lend properly, while controlling their operating costs, and instead resort to 'lending' money to governments at negative yields);

  • Cannot structure their capital (CoCos* madness anyone?);

  • Cannot compete with more agile fintech challengers (because the dinosaur mentality and hierarchical structures of traditional banking prevents real innovation permeating banks' strategies and operations);

  • Cannot reform their business models to reflect changing nature of their customers demands (because they simply no longer can think of their customers needs); and

  • Cannot succeed in their traditional markets and services (despite being heavily shielded from competition by regulators and subsidised by the governments).

Instead of whingeing about the banks' plight, we should focus on the banks' resound failures and stop giving custom to the patrician incumbents. Let competition restructure Europe's banking sector. The only thing that sustains Europe's banks today is national- and ECB-level regulatory protectionism that contains competition within the core set of banking services.

It is only a matter of time before M&As and organic build up of fintech players will blow this cozy cartel up from the inside.

So regulators today have two options: keep pretending that this won't happen and keep granting banks a license to milk their customers and monetary systems; or open the hatches and let the fresh air in.


*A contingent convertible bond (CoCo), also known as an enhanced capital note (ECN), is a fixed-income instrument that is convertible into equity if a pre-specified trigger event occurs. The concept of CoCo has been particularly discussed in the context of crisis management in the banking industry. The logic behind contingency convertibles is somewhat inverted from the traditional convertible bond which is exchanged for stock when the stock price rises to a specified value. Instead of converting bonds to common shares based solely on stock price appreciation, investors in contingent convertibles agree to take equity in exchange for debt when the bank's capital ratio falls below a certain point. In a manner of speaking it is a "bail-in" instrument which coverts bond principal to an equity position when equity has "become scarce". Read more at Investopedia.


A previous version of this article (Europe'e Banks: Dinosaurs On Their Last Legs) appeared at true economics 10 July 2016.


>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical Opinion Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Opinion


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
The Expected Effects of Petitions to Improve the Monetary System
Energy and Falling Productivity
News Blog
September 2016 Texas Manufacturing Survey Improves Further Into Expansion.
August 2016 New Home Sales Decline On Lower Median Sales Prices.
U.S. Real Wage Growth: Fast Out Of The Starting Blocks - Part 1 Of 2
Who Works More Hours Per Week: Rich Or Poor Countries?
Infographic Of The Day: How The World's Most Iconic Logos Evolve Over Time
Early Headlines: Asia Stocks Down, Fed Wants Banks' Commodity Limits, Treasuries Being Sold, EZ Business Output Softens, France Contraction, Saudi's Boost Banks, Canada Tightens Borders For Chinese And More
Most Read Articles Last Week Ending 24 September
How Britain Owes Its Immigrants A Debt Of Gratitude
Super Mario, The Timeless Bestseller
Explainer: The Nine Swing States That Will Decide The Next US President
How Long Does Apple Support Older IPhone Models
What We Read Today 25 September 2016
Dangerous Ultra Pure Water
Investing Blog
Monday Morning Call 26 September
We're Back Here We Started
Opinion Blog
Heading For A Fall? With Summer Over, Europe Must Face Up To Its Mounting Crises
What If We're In A Depression But Don't Know It?
Precious Metals Blog
War On Cash Turns To $20, $50, And $100 Bills
Live Markets
26Sep2016 Pre-Market Commentary: Wall Street Fractionally Lower, Volatility Expected In The Crude Markets Later This Week, First Presidential Debate Tonight
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government



Crowdfunding ....






























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved