“INVESTING IN EUROPEAN BANKS SINCE THE BANKING CRISIS HAS LEFT SOMETHING TO BE DESIRED!”

BANK

9/3/09

4/1/19

14/1/20

% profit/loss since 9/3/09

HSBC

360.75p

656.50p

591p

+63%

Barclays

56.72

155.1p

179.76p

+216%

Lloyds

86.67p

52.80

58.69

-32.3%

RBS

399.90p

221.20p

230.60p

-42%

Standard Chart

815p

607.80p

713.60p

-12%

JP Morgan

$15.93

$100.69

$137.20

+756%

BoA

$3.14

$25.58

$35.06

+1066%

Citigroup

$16.20

$55.13

$80.65

+406%

Goldman Sachs

$92.00

$175.05

$245.21

+166%

Wells Fargo

$8.61

$47.95

$52.11

+505%

Morgan Stanley

$17.18

$41.30

$52.78

+207%

Soc Gen

€23.37

€28.37

€31.44

+34%

BNP

€21.74

€40.74

€51.83

+138%

Deutsche Bank

€18.79

€7.44

€7.60

-59%

Intesa

€2.63

€2.00

€2.34

-11%

UniCredit

€91.80

€10.21

€13.30

-86%

Santander

€4.07

€4.16

€3.66

-10%

BBVA

€4.82

€4.87

€4.87

-1%

ING

€2.49

€9.84

€10.75

+332%

KBC

€8.02

€58.18

€67.56

+742%

Skan Enskilda

SEK17.29

SEK89.34

SEK89.38

+417%

Den Danske

DKK37.80

DKK 133.85

DKK108.85

+188%

Sumitomo Mitsui

Y3180

Y3662

Y3998

+26%

Bishi/UFJ

Y401

Y538

Y579

+44%

Mizuho

Y176

Y171

Y167

-5%

Bank of Montreal

C$31.55

C$90.15

C$102.20

+224%

RBC

C$29.40

C$94.14

C$104.71

+256%

ANZ

AUS$13.30

AUS$24.25

AUS$25.20

+89%


DENOTES – This table does not make allowances for mergers, rights issues, splits or payments/dividends to governments – If so, some performances would look even worse.

 

With US banks posting earnings this week, I thought it might be interesting to draw up a performance table across the global spectrum since the banking crisis was at its lowest point, just before quantitative easing was introduced on 9th March 2009 until yesterday. Many cynics like me, think there is every possibility that there will be another banking crisis in the next decade. Why? There are liquidity issues and the level of debt – government, corporate, bonds, mortgages and consumer are at eyewatering levels – circa $188 trillion as of last November. Interest rates remain dangerously low, due to the sluggish rate the world’s economy is recovering at. Hence, borrowing gargantuan sums of money relative to each sector at these cheap levels looks easy and without any immediate problems. However, if the world’s economy keeps slowing down and unemployment rises, or the sensitive geopolitical situation gets out of hand in the Middle East, Central banks have a limited arsenal to cut rates with. Then it is possible that bond yields will start to rise. That being the case, we could have a serious problem. Rates could remain low for a year or two, but there are only two ‘certs’ in life – rent day and death. Banks have huge loan portfolios earning limited interest rates.

I think it unlikely that the FED will cut rates in the next few months, despite President Trump standing on FED chairman Jay Powell’s corns, unless the US economy starts to come off the boil. If rates do eventually rise measurably, the consumer will suffer badly. We cannot keep saying ‘it’s never going to happen’ – because it could in certain circumstances.

Why have US banks done so much better than their counterparts? Firstly, I think the FED and the US Treasury bit the bullet and took their medicine much more quickly than their European counterparts. Every single bank was forced to participate in TARP, regardless of whether they needed the facility or not. Treasury Secretary Paulson & Fed Chairman Bernanke were also quick ‘out of the traps’ in introducing humungous levels of QE resulting in liquidity short comings being ironed out. QE also provided a wonderful springboard for recovery, triggered by the banks, who bought equities like they were going out of fashion. Today JP Morgan Chase and Citigroup kept their shows on the road in beating expectations. Sadly, Wells Fargo’s effort did not pass muster

Europe was slow and ponderous responding to the crisis in 2008/9. The ECB (J-C Trichet et all) faffed about wondering what to do and QE initially was not considered necessary and here in the UK PM Gordon Brown took an age to make any meaningful decisions, not wanting to take action without being in ‘synch’ with the EU. However, once decisions were made, Governor King and his able deputy Sir Paul Tucker rose to the occasion, putting the banking system together again, unlike ‘Humpty Dumpty’, with the minimum of fuss. Neither were given enough credit for doing so.

Why have UK banks taken so long to come back on the bridle? There were a number of reasons. Firstly, RBS was really the only bank to suffer badly from sub-prime lending. HSBC had done so 2 years previously through their ownership of Household. The UK’S credit crisis was caused by over-zealous and injudicious lending with wholly inadequate regulatory controls. Mervyn King had flagged this matter up, but both Labour and the Tories chose to ignore the cry from the wilderness. On top of having rotten balance sheets, UK banks have also had to pay out £50 billion in compensation for unnecessary PPI policies. The PRA has also been quite rightly very tough in increasing banking capital requirements, with investment banking business being ring-fenced, incurring increased costs.

Europe took forever introducing QE, which disadvantaged their banks. Many think Deutsche, the largest derivative trader in the world, still looks vulnerable. Italian and Spanish banks do not seem to be on top of their game. Greek banks are also suffering. I must salute Governor Mark Carney, Andrew Bailey and Sam Woods for their draconian approach to regulation and bank stress tests. Many people believe that UK banks are better placed to face a crisis than many of their European counterparts. Apart from Germany, unemployment in many countries in Europe is dangerously high in comparison to the UK – France 8.5% and UK 4%. If rates go up, the pressure on banks will intensify.

Finally, let me ‘doff my titfer’ to Canadian and Australian banks – little or no sign of sub-prime lending debris.

David Buik

Core Spreads

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