When did
European banks start showing signs of a fatigue. Was it today, yesterday or the
day before?
A few weeks ago, it was Deutsche
Bank.
Yesterday it was HSBC.
Today it is Stanchart. Standard Chartered Plc reported
a loss of $981 million from its India operations. Loan impairments, including
restructured loans, in India portfolio went up to $1.3 billion in 2015. It
has also suffered on account of commodity price falls. Stanchart has run
in to a loss of $1.5bn for 2015. Stanchart is an emerging market
entrenched bank and reflects the agonies of the situation for financial
institutions in these markets.
It seems that European
big banks may have lost reflexes. This fall in shareholder values
is not a sudden development ; it has been a developing story for
quite a few years. Valueless banking (LIBOR fixing, money laundering
involvement, breaching sanctions) all indicate a fall in value systems among
bank managers in Europe. It is not specific to a bank but across the
industry.
It cannot be that
economies do not do well and banks do. Banks are financial institutions that
lubricate the real sector. They are at the heart Example: Emerging markets are running out of
steam with heavy stones of NPAs and slowing economies round their neck.
example, the QE that was attempted by the ECB a few months ago, is an
aftermath of a stalled real sector. The latter state of affairs had to affect the financial sector at least
with some lag. Monetary pump priming also makes it easier to distribute credit
but it also facilitates adverse selection. Banks dump credit on to customers
who find it difficult to survive a difficult economic situation in the real
world. Banks and other financial institutions cannot make profits even as the
real sector is in a state of sluggishness.
Markets
must run more on fundamental factors and less on sentimental expectations.
This blog recommends no investment.
All views expressed are without any risk or responsibility.
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