Markets and economics: Falling bank shares: a bad omen?

Posted: February 8, 2016 in economy
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ANOTHER worry has been added to the long list plaguing equity markets this year. Bank shares have been falling fast, particularly those in Europe, which in morning trading, were down 22% so far this year. The collapse of 2007 and 2008 was all about the banking sector. If European banks are in trouble, then comparisons with that period are bound to mount; earlier worries, notably the slowdown in Chinese growth and the fall in commodity prices, had more parallels with the Asian crisis of 1997-98.A number of factors are hurting bank shares. First, the sluggish performance of European economies over several years means there are worries about bad debts on bank balance sheets; Heartwood Investment Management reckons that 16.7% of Italian bank loans are non-performing, against a European average of 5.6%. Italian banks have been amongst the hardest hit. More generally, however, the recent results season for Europe's banks was disappointing with the CreditSights research team describing them as weakened by a mix of restructuring charges, goodwill writedowns, lower trading revenues and impairmentsSecond, there are specific worries elsewhere. Deustche Bank's shares and bonds have been hit by worries about its ability to pay coupons on its $5 billion or so in convertible capital bonds (cocos). Greek banks have been hit by renewed worries about the country's bailout agreement …

via Economic Crisis


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