Tuesday, February 9, 2016

The Selloff In European Banks Is Ominous.......

The Selloff In European Banks Is Ominous

European banks have been caught in a perfect storm of market turmoil. Europe's bank index has posted its longest weekly string of losses since 2008. 
European banks have utterly imploded.

Deutsche Bank itself warned, any more easing by The ECB or BOJ will only hurt banks and certainly Deutsche. In other words, they are all officially trapped now.

The global economy is in a state of turmoil and the gambit of QE and recovery have been recognized for the hallucinogenic mirage that they are. 

There is an age old saying that we all know,it goes like this:

Fool me once, shame on you, fool me twice, shame on me. If there was a third part to this saying it would be something like: Fool me three times and I must be a complete fool, investors don't like getting to the second line and getting to the third phase is avoided like the plague for very obvious reasons.

Regarding central banks and QE, at this point,most market participants have come to the realization in the second line of this age old saying. They realize they have been duped. Perception is everything in markets, people will continue on in whatever direction up until they have gained sufficient evidence to realize they are or were being fools. People know that there is no recovery and QE does not work and more of what does not work is not the answer. Most investors have a queasy feeling, a tightening knot in their gut that tells them they have been taken, lied to, manipulated. They have started to realize that central bankers are nothing but naked emperors spewing an unobtainable and manipulative party line for their own benefit. Most of these investors know something is wrong, perhaps very wrong, but most have not acted in their own best interest yet because there is no comfortable easy answer, so many are very concerned, but confused about what to do so they remain in the market.

As the market turmoil increases and continues they will realize the severity, the urgency, the absolute necessity of acting in their best interest and they will at some point sell to preserve their wealth and exit the growing danger. This is exactly what central banks have been trying to prevent with all their jawboning and policy maneuvers. Perception is a real bitch when it turns against it's faulty masters. This time the lie has been universal and the coming cascade will be unstoppable until it bottoms of it's own accord. Europe's distressed banks are one serious sign of the coming deluge.

Central banks cannot expect to control the price of money with insane policy and not have the economy and markets suffer adverse consequences.

Nothing is fixed and it's starting to become very obvious! 

European banks are in freefall, down over 4.3% broadly, crashing to 2012's "whatever it takes" lows.

European bank risk is high and rising, not only is it time to panic but the panic is 'contagion'-ing over into the sovereign risk market.


Lackluster profits and negative interest rates, have prompted investors to dump shares in the sector that was touted as one of the best investment ideas just a few months ago.

The region's banking gauge, the Stoxx Europe 600 Banks Index has logged six straight weeks of declines, its longest weekly losing stretch since 2008, when banks booked 10 weeks of losses, beginning in May.

"The current environment for European banks is very, very bad. Over a full business cycle, I think it's very questionable whether banks on average are able to cover their cost of equity. And as a result that makes it an unattractive investment for long-term investors," warned Peter Garnry, head of equity strategy at Saxo Bank.

The doom-and-gloom outlook for banks comes as the stock market has had an ominous start to the year.

East or west, investors ran for the exit in a market marred by panic over tumbling oil prices and signs of sluggishness in China. But for Europe's banking sector, the new year has started even worse, sending the bank index down 23% year-to-date, compared with 13% for the broader Stoxx Europe 600 index.



So what happened? At the end of last year, banks were singled out as one of the most popular sectors for 2016 because of expected benefits from higher bond yields, rising inflation expectations and improved economic growth. That outlook, however, was before the one-two punch of plunging oil and a slowdown in China sapped investor confidence world-wide.

At this rate, Germany will be asking Greece for a bailout...

Germany's largest bank's credit risk is accelerating unbelievably:



Quantitative easing is just not doing the trick in Europe or anywhere else.

And its worrisome, because banks are very important for the credit mechanism in the economy. The current weakness is scary.

Some of the sector's collective underperformance comes down to exceptionally bad performances for a number of the bigger banks. Deutsche Bank  for example, has tumbled 36% year to date, amid a painful restructuring. And Credit Suisse is down 34% for the year as it posted a massive fourth-quarter loss.

But there is more to the sector slump than just the individual bank problems. The negative interest rates set by the ECB means that banks effectively have to pay to have cash on their balance sheets, while at the same time getting squeezed on their net interest margins. Debt levels are already really high on the continent, which means further loan growth is expected to be low.

And then there is the impact from a slowdown in growth.

You have regulatory rules coming into play that is curbing and cutting back on the profits you can make in your capital markets division. You have general lower economic activity, which is also leading to lower activity in your advisory and M&A business. So it's not very fun to be a European bank at the moment.

Saxo Bank was negative on the European banking sector going into 2016 and is sticking to the downbeat assessment longer-term.





Deutsche Banks Derivative Exposure


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