And this is notwithstanding the fact that investors hate banks right now anyway, with some countries (Greece, France, Italy, Belgium and Spain – or the GFibs as Goldman Sachs would probably say) banning short-selling of specific bank stocks.
Today there is even more bad news as it was announced that two unnamed banks went to the European Central Bank’ weekly dollar funding facility for the second time in a month indicating that interbank lending could be slowing down markedly.
In more bad banking news today, some banks that were named included Credit Agricole and Société Générale were downgraded by Moody’s given their exposure to Greek debt and reliance on wholesale financing respectively.
On the plus side, BNP Paribas announced a restructuring deal that will see €70bn of assets offloaded (a move that will include its exit from the UK) and its investment bank’s funding needs reduced by €60bn by the close of 2012.
The overall problems in Europe have so far been described in terms of it being a sovereign debt crisis when it is just as much a banking crisis.
“The problem isn’t just that several governments have been spending well beyond their means and no-one wants to lend them any more cheap money, but that Europe’s banks have already lent a great deal of money to them (by buying their bonds) and have not subsequently written down the value of those loans to reflect the reality they won’t be getting all their money back,” explains David Stewart, chief investment officer at Butterfield Private Bank.
“But, just as in 2008, the knowledge these ‘toxic’ loans exist is leading to a collapse in confidence and subsequent drying up of the interbank loan market in Europe – the lifeblood of a functioning modern economy.”
While attention should be paid to a banking system that does need drastic reform, there does seem to be an extraordinary amount of bad news surrounding banks right now. Unfortunately it is not all sentiment-driven either so as much as a strong banking system is vital to any recovery, this recovery could be on very shaky grounds indeed.
