In response to an FT article by Simon Samuels on 22nd February 2016, entitled 'Taxpayers cannot bank on an end to the era of too big to fail'
"During Deutsche Bank’s share price meltdown a couple of weeks ago, Wolfgang Schäuble, the German finance minister, said he had “no concerns” about the health of Germany’s largest bank"
Yes, and at roughly the same time the co-CEO John Cryan was 'rolled out' to announce that the bank was 'absolutely rock solid'. In football such noises from the Chariman and CEO normally herald the imminent sacking of the manager after the next miserable result. In Deutsche’s case I doubt the market will be any more forgiving than Roman Abramovich.
According to the European Banking Authority in a report from the end of November 2015:
"The scale of bad loans held by banks in the European Union is "a major concern" and more than double the level in the United States"
The total of non-performing loans across Europe is about 1 trillion euros, equivalent to 7.3 percent of the EU's GDP. Some 16.7 percent of loans at banks in Italy were designated as NPLs, equivalent to 17.1 percent of the country's GDP. Spain's banks had an average NPL ratio of 7.1 percent, or 15.8 percent of its GDP.
In other words, the zombies that have been kept alive by 7 years of relentless easy money policies are beginning to drop. This story is just starting and it has a long way to run. But I don't think bail outs will be the story. If the ECB bailed out Deutsche Bank now what would that say? It would say there is one rule for Greece and another for Germany. 'That's true' I hear many of you cry, but the political ramifications of this might ring a death knell for the euro.
So what's it to be? Bail Ins. You think all those bail-in laws that have been passed were done 'just in case'? Maybe, but I don't think that was 'insurance' – I think it was ‘forward planning’. Governments may be incompetent but they are not totally stupid...at least not in a Machiavellian sort of way :-)
All this talk about the abolition of 500 euro notes from Mario Draghi and Larry Summers, and $100 bills from, again Professor Summers, is 'positioning'. It's not because these bleeding hearts are trying to protect us from terrorism - if they wanted to do that they could just stop arming and training terrorists - it's because they cannot get really serious about NIRP unless they can lock the money inside the system, and cash is a tad inconvenient if you want to go ‘Full Krugman’, or is it ‘Full Summers’…never mind.
So happy Monday everyone. Of course I could be wrong, and Messrs. Schäuble and Cryan may be right - maybe everything in Deutsche Bank is really 'rock solid'? Personally I won't be walking underneath the overhanging rock in order to find out.
For those less cynical than me, you may say this is typical permabear stuff, or even conspiracy theory. Maybe - on the other hand what would you have said in 2005 if anyone had told you that the banks were slicing and dicing toxic waste, and selling it to Mom & Pop pension schemes whilst the rating agencies were looking the other way and the regulators were saying it was all fine…while in truth, none of them understood what was in those products but were being encouraged by the mood of the day and the wishes of the administration to allow the good times to roll. You'd have said – ‘conspiracy theory’. Well...that's what happened...some people did warn about it...and those people were told 'conspiracy theory'.
Maybe I'm wrong - I'm not God or Ben Bernanke. But fortunately I manage my own money and don't have to dance to anyone's tune, meet any mandates, or put on a brave face for the cameras whilst I cross my fingers and pray for something to turn up...and personally I wouldn't touch European banks with a ten foot barge pole.