What on earth is going on in European bank stocks? Deutsche Bank (DB) is down 35% year-to-date. The company was under pressure yesterday to reassure shareholders that it had enough cash to pay its debts. Credit default swaps on DB debt rose as well. Convertible bond holders are realising they could be converted into DB equity, which is not great when the share price is in free fall.
Greek bank stocks took a hammering too. They were down nearly 25%. The benchmark index in Athens fell 7.9%. Capital controls last year and controversy over pension reform were a disaster for Greek banks last year. Now, it’s the same old question: will creditors get paid? Will bondholders get bailed in? What is to be done with the debt?
The same types of issues are in play in the Italian banking sector. Can the banks be restructured so that the bad debt is moved off the balance sheet, freeing up the banks to lend again? Who will they lend to? Who did they lend to last time that gave them the bad debt problem in the first place?
You can’t really blame stockmarket investors for selling first and asking questions later, to paraphrase a trader in today’s wire stories. Here we are in 2016 and we’re still talking about bad debt problems at banks. It triggered a wealth wipeout last time. Is it doing so again now?
Category: Market updates