How Broken Are European Banks? Can They Be Saved?
I think a lot of depends on who will win the US elections this year, and we will see the trend to turn on isolationists or financial elite and bankers . Anyway it is quite possible that all European banks will be saved in a similar way as has been done with banks in Cyprus by depositors and their money
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It’s been a rough decade so far for the banking sector. Beginning with the dramatic failure of highly-leveraged Bear Stearns and its subsequent sale to JP Morgan (NYSE:JPM) in mid-March 2008, through the collapse of Lehman Brothers in September 2008—the largest bankruptcy filing in U.S history—the world of banking has been unable to recover.
And the current economic environment isn't helping: low-to-negative interest rates, falling bond yields that don't seem to have a bottom, ongoing housing bubbles in a variety of global markets, oil-related insolvencies and underperforming loan portfolios mean the profitability, not to mention stability, of many international banks is in question. This is particularly true of European banks, which can't seem to catch a break.
If it's not a global financial crisis, it's bad oil loans, which for example have forced Bank of America (NYSE:BAC) to add a billion dollars to its rainy day fund as a contingency measure. And then of course there's the Greek debt repayment, of which $28 billion is held by a consortium of German banks, while France's Credit Agricole (PA:CAGR) on its own holds 3.5 billion euros ($3.86B), making it the most exposed of Europe's commercial banks.
And don't forget Brexit, the most recent hit to Europe's banks. It has ravaged the UK financial sector, causing banks such as the Royal Bank of Scotland (LON:RBS), Lloyds (LON:LLOY), and Barclays (LON:BARC), to drop tens of percents.
The charts of some European banks paint a grim picture that underscores a number of clear and rather stark truths. First, not a single European big bank has completely recovered from the 2008 financial crisis. While some American banks and financial institutions—such as Wells Fargo (NYSE:WFC) or JPMorgan—have managed to reclaim their highs prior to the crisis, things have never been the same for European banks.
Deutsche Bank (NYSE:DB), for example, traded at a high of $139 per share prior to the 2008 crisis. Its post-crash high during October 2009 was $73, a bit over half its previous value. It's currently trading below $13.
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