If we look back over the credit crunch era we were told that bailing out the banks would lead us into a better future. The truth nearly a decade later in some cases ( Northern Rock in the UK) is that we see a situation where central banks have enormous balance sheets and low interest-rates dominate with the Euro area and Japan in particular having negative interest-rates. That is most odd in the Euro area as of course we have been told only this morning by the Purchasing Managers indices that growth in France and Germany is strong. So something has changed and is not quite right and if we look we see signs of trouble in the banking industry even after all the bailouts and accommodative monetary policy.
Royal Bank of Scotland
This has turned out to be the doppelgänger of the concept of the gift which keeps on giving. Each year we have had promises of recovery at RBS from whoever is in charge and each year that fades to then be replaced by the same in a so far endless cycle. Rather like Greece actually. Also the original promise of the UK taxpayer getting their money back seems further away than ever as the price of £2.40 is less than half of what was paid back then. Quite an achievement when we see so many stock markets close to all time highs.
As to the economic effect well claims of benefits have had to face a stream of bad news of which there was more yesterday. From the BBC.
Hundreds of jobs will be lost following a decision to close almost 160 RBS and NatWest branches.
RBS blamed a “dramatic shift” in banking, with branch transactions falling 43% since 2010.
In the same period, online and mobile transactions have increased by more than 400%.
Whilst online and mobile transactions have plainly surged it is also true that all bad news is claimed as somebody else’s fault. If you have a zombie bank wallowing on then you will of course be affected by change especially in this sort of timeframe.
RBS remains still majority-owned by taxpayers following its multi-billion government bailout almost a decade ago.
If we look back to the UK motor industry bailouts were stopped because the business model no longer applied yet that critique seems to have been forgotten. I note that after of course a fair bit of economic pain the motor industry is producing record figures.
I wrote about the latest problems of this bank on the 13th of February and this morning I note we have a sort of official denial of trouble in the Financial Times.
Co-Operative Bank says “a number” of suitors have come forward since it announced plans to fin a buyer in February.
This gives rather a different picture to this from Sky News on Tuesday.
Co-op Bank bonds have been trading at little more than 80p in the pound this week, underlining investors’ pessimism that a £400m repayment due in September will be made.
Talk is cheap but apparently those bonds are not cheap enough?! Easy money if you believe the hype especially at a time of low interest-rates and yields.
But you see I warned about this back in February.
The problem in my opinion is that when a bank has trouble the record is simply that so far we have never been told the full truth at the beginning.
And note this from Sky News.
One insider said the Bank of England had hosted a meeting last week at which the Co-op Bank’s problematic pension schemes had been discussed.
The losses of £477 million last year and the announced need for £750 million should there not be a sale are hardly good portents. Back in February I feared the Bank of England might find itself stepping in and that danger has increased in the meantime.
My eyes were drawn to this yesterday from Patricia Kowsman of the Wall Street Journal.
Portugal state-owned bank raises EUR500M carrying hefty 10.75% interest. Says 49% of buyers asset managers, 41% hedge funds. Majority in UK.
In these times an interest-rate of 10.75% is extraordinary for a state-owned bank and compares to a ten-year bond yield for Portugal that has been around 4% for a while. Why might this be so?
Also on Wednesday, a group of major international investors that suffered losses on Novo Banco’s senior bonds issued a warning to the Portuguese authorities and indicated that an agreement to minimize those losses would be beneficial to the country. The group, led by BlackRock and PIMCO, said Portugal and Portuguese banks continue to pay the Bank of Portugal’s decision to transfer obligations from the New Bank to BES ‘bad’ at the end of 2015.( Economia)
So a past bailout has caused what Taylor Swift would call “trouble,trouble, trouble” and if we return to Patricia the record of Caixa Geral de Depósitos has been very poor.
Well, it’s a state-owned bank that had a EUR1.86B loss last year, big NPLs, in a country with a v weak banking system ( NPLs are Non Performing Loans)
We find ourselves in a situation where a past bailout ( BES) have made life more difficult for a current one and the Portuguese taxpayer ends up being held over a barrel especially after the European Commission declared this.
CGD will also take actions to further strengthen its capital position from private sources
This bit raised a wry smile.
the Commission analysed the injection of €2.5 billion of new equity into CGD by Portugal and found that it generates a sufficient return that a private investor would have accepted as well.
Can they see the future now? Shall we call it forward guidance…..
Speaking of forward guidance around this time last year Finance Minister Padoan was telling us that bailouts were not going to be required for Italy’s banks and Prime Minister Renzi was telling us what a good investment the shares of Monte Paschi were. Anyway if we move to this Wednesday Reuters were reporting this.
Italy’s plans to bail out two regional banks pose a tough dilemma to European regulators, who are still considering whether Monte dei Paschi qualifies for state aid, three months after giving a preliminary green light.
Banca Popolare di Vicenza and Veneto Banca said
If they hang on long enough with Monte dei Paschi maybe something will turn up. Oh and there is Unicredit the largest bank which I called a zombie on Sky News about five years ago. It is issuing another 13 billion Euros of shares which further dilutes shareholders who of course have had to dig deep into their pockets before. Also there were plenty of rumours that it was a big recipient from the ECB TLTRO ( cheap money for banks) this week. Looking more generally Frederik Ducrozet of Bank Pictet thought this.
Extrapolating from the share of each country in previous operations, Italy and Spain would account for at least 60% of total TLTROs holdings.
The official mantra has been along the lines of D-Ream’s “Things can only get better” and yet this happened this week. From the Bank of Greece.
On 22 March 2017 the Governing Council of the ECB did not object to an ELA-ceiling for Greek banks of €46.6 billion, up to and including Wednesday, 5 April 2017, following a request by the Bank of Greece.
The increase of €0.4 billion in the ceiling reflects developments in the liquidity situation of Greek banks, taking into account private sector deposits flows.
In a situation where we keep being told the Greek economy is improving?
This is like an economic version of the never-ending story. Proclamations of success and triumph are followed by “move along please, nothing to see here” and then well you know! In addition to the bailouts there are other schemes to help the banks. For example the cheap loans offered by the Bank of England under its Term Funding Scheme have now reached some £47.25 billion. If we move to Europe I note that Bank Pictet think this.
In aggregate, the maximum subsidy from those long-term loans at a negative rate is EUR3bn on an annual basis, compared with a total cost of the ECB’s negative deposit rate of around EUR5.5bn (a number that will grow to over EUR8bn as QE continues).
As you can see some of it is hidden or to be more precise not generally known. The biggest critique is simply the “lost decade” for the banking sector we seem trapped in and we learnt explicitly from the chief economist of the Bank of England earlier this week that different rules apply to his “Precious”. From Chris Giles of the Financial Times.
why does the chief econ of BoE think banks accounting for a third of the productivity puzzle is peanuts?
When people look away though banks seem to return to type.
Credit Suisse Group AG increased its bonus pool 6 percent…….The bank is increasing its bonus pool for the first time since 2013 in spite of a second consecutive annual loss.
After posting this I note that a long post from Reuters has a different perspective to mine.
Banks used to have a cosy relationship with Britain’s government. Now they say they are struggling to be heard as the country prepares to leave the EU…….
Or perhaps not albeit from a different corner.
Senior bankers expected special treatment from the government after Britain voted to leave the EU. They expected ministers to champion their cause, above other industries,