July 8, 2020

Off the Charts: European Banks Thriving as Investor Fears Ease

The bank crisis is not yet resolved, but it “appears to have been put on the back burner of investor concerns,” Jeffrey Yale Rubin and Kevin Pleines of Birinyi Associates said in a research bulletin sent to clients this week.

The accompanying charts show what has happened to the share prices of an index of euro zone bank stocks, and to each of the 28 members in the index, since June 30. In early July, the index kept falling, but by late in the month it turned around. Anyone who bought all the banks at the end of June is up by about 25 percent. Anyone with the good fortune to buy at the exact bottom has a profit of about half the money invested.

The bank stocks have outperformed other European stocks and they have outperformed American bank stocks, although the shares of most American banks also have risen.

The reasons for the relaxation of investor fears are simple enough. There is a growing confidence that euro zone institutions will succeed in their support efforts. Finance ministers are still arguing about the details of a single regulator for banks throughout the zone, but the European Central Bank’s promise to lend money to banks that need it is widely accepted, and investors believe that Germany will put up whatever money is needed to keep the euro zone from breaking up.

Troubled governments like Italy and Spain are still paying much more than Germany to borrow, but their rates have fallen. Costs have declined even in Portugal, which is in the weakest position of countries other than Greece. The French banks led the way up in late 2012, but even the price of Banco Espirito, a Portuguese bank, has soared by about half since midyear. There are still major concerns about troubled Spanish banks, and two of those join an Italian institution in being the only stock market losers over the period. But the National Bank of Greece managed a small gain.

None of this means that those banks have served long-term shareholders well. Only one of them, a Finnish institution, has a share price higher than it did at the end of 2007, before the financial crisis.

But, for now at least, investors seem to have growing confidence that the banks will survive. Given the fears of a few months ago, that is reason for celebration.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://www.nytimes.com/2012/12/08/business/european-banks-thriving-as-investor-fears-ease.html?partner=rss&emc=rss

Off the Charts: For Banks, Unfortunate Echoes of 2008

Then Lehman Brothers failed, and prices fell much more.

As the anniversary of that date approached, investors seemed to fear it might all happen again. By the end of this week, those same indexes were down about as much this year as they were at this point in 2008, and many bank stocks did even worse than they did in early 2008.

There is a circular logic to this year’s decline. In 2008, banks in many countries were rescued by governments. Now it is feared that banks may be in danger because some of the same governments may not be able to meet their obligations. That is particularly true in Europe, where bonds from several countries trade well below face value.

On Friday, Greece’s finance minister, Evangelos Venizelos, blamed “organized rumors” for renewed speculation that Greece would default, and said the country intended to comply with all terms needed for the bailout that European countries agreed to in July. But the fact that the details of the deal have yet to be locked down has unnerved some investors.

In a speech this week, Josef Ackermann, the chief executive of Deutsche Bank, said it was not justifiable for politicians to demand that European banks raise more capital, as Christine Lagarde, the head of the International Monetary Fund, had done. “It’s obvious,” he said, “that many European banks would not be able to handle writing down the sovereign bonds they hold on their banking books to market levels.”

But, he said, it would “risk undermining the credibility” of European bailout packages “if politicians were to now send out the signal that they do not believe in the success of those measures.” And, he argued, forcing banks to raise capital now would anger investors by forcing the dilution of current shareholders.

As can be seen in the accompanying charts, Deutsche Bank has lost more than two-fifths of its value this year, a performance that is better than that of some banks. Its shares are trading for about what they cost at the end of 2008, but they are less than half what they were worth just before the Lehman failure.

Of the 30 banks shown, only one — Standard Chartered of Britain — has a share price higher than it had on the eve of the Lehman collapse. Even so, its shares have lost nearly a quarter of their value this year.

Shares in Intesa Sanpaulo, an Italian bank, have lost half their value this year, and are trading for about one-quarter less than they did on March 9, 2009, when most financial stocks hit their credit crisis lows. UniCredit in Italy, Société Générale in France and Lloyds in Britain have also suffered badly this year, losing half or more of their value. Credit Suisse, in Switzerland, and Barclays, in Britain, have fallen almost as much.

Among the largest American banks, some of the worst performers have been those that were widely deemed to be too big to fail. Bank of America, troubled by its ill-fated acquisition of Countrywide Financial, is the worst performer so far in 2011, but Citigroup, Goldman Sachs and Morgan Stanley have done almost as poorly. Morgan Stanley’s share price is also a little below its March 9, 2009, level.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://feeds.nytimes.com/click.phdo?i=227012da0481414d99e4e28e5d7c128f

Stocks and Bonds: U.S. Stocks Return to Pre-Downgrade Level

A spate of mergers and acquisitions helped build a rally of more than 2 percent in the Standard Poor’s 500-stock index, leading some analysts to weigh whether the surge signaled a possible period of stability after last week’s steep losses and volatility.

Standard Poor’s downgraded the nation’s credit rating on Aug. 5, after the market had closed at 1,199.38. Stocks sold off the next week, with the S. P. 500 and the Dow Jones industrial average finishing the five-day period nearly 2 percent lower. On Monday, however, the broader market as measured by the S. P. 500 inched above the pre-downgrade level to close at 1,204.49, after gaining 25.68 points, or 2.2 percent.

The Dow was up 213.88 points, or 1.9 percent, at 11,482.90, also exceeding its pre-downgrade close of 11,444.61. The same was the case with the Nasdaq composite index, up 47.22 points, or 1.9 percent, at 2,555.20.

With gains of around 3 percent in utility, energy and bank stocks on Monday, analysts were cautiously weighing whether the worst of the recent upheaval was over.

“For now it is clear that in essence there is a relief in the market,” said Quincy Krosby, a market strategist for Prudential Financial. “You can feel it.”

Still, given the unease that had set in even before the downgrade, stocks are still in a slump. The S. P. 500 is more than 10 percent below where it was as recently as July 22.

And even as shares climbed on Monday, Ms. Krosby and other analysts said there was plenty of new economic information in the week ahead that could upend the gains of the last three sessions, including jobless claims and the Consumer Price Index. In addition, Monday’s volumes were low.

“When the buying picks up, we like to see more buying,” she said. “It is an indication of more conviction.”

New deals helped propel Monday’s market. A multibillion-dollar Google deal, a rise in commodity prices and the perception that European leaders and the central bank would take measures including bond purchases to support heavily indebted member countries could be helping, analysts said, though such sovereign debt and economic problems are expected to remain a factor in the markets.

Financial stocks rose, including Bank of America, which increased 7.9 percent to $7.76. It took steps on Monday to leave the international credit card business, agreeing to sell its $8.6 billion Canadian card venture to the TD Bank Group for an undisclosed amount, and putting its remaining European card portfolio on the block.

Citigroup was up 4.8 percent to $31.27.

Worries about the United States economy and the threat of a financial crisis in Europe had already overwhelmed traders, but the downgrade proved to be a tipping point, sending stocks reeling in what turned out to be one of the most tumultuous weeks on Wall Street.

Analysts said that investors were taking a second look at some of the causes of the volatility from last week.

Investors’ attention was focused on a meeting Tuesday of Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France.

The two leaders will be addressing the threat to the euro zone posed by low growth and teetering public finances in some euro member nations, their room to maneuver circumscribed by fears that France could be next for market attacks.

“People are taking a more rational view of the path ahead, that some of the problems in Europe can be addressed with additional spending restraint from some of the governments,” which will take time, said Russell Price, senior economist with Ameriprise Financial.

The euro rose against the dollar, a development that Ms. Krosby of Prudential attributed to expectations for the Merkel-Sarkozy meeting.

The price of the benchmark 10-year Treasury note fell 14/32, to 98 12/32, and the yield rose to 2.31 percent, from 2.26 percent late Friday.

“Today was a day that people took a little bit of a rest to try to digest all the news that has happened and the volatility that has happened in the market recently,” said George Rusnak, national director of fixed income for Wells Fargo.

Broader commodity prices were up, and investors were probably bargain hunting after last week’s declines, said Keith B. Hembre, the chief economist and chief investment strategist at Nuveen Asset Management.

“It is part of the market trying to find its feet,” he said. “Despite the bounce on Friday, this market has been really beaten up.”

European stocks showed modest gains. The FTSE 100 index in London was up 0.6 percent. The CAC 40 in France rose 0.8 percent and the DAX in Germany was up 0.4 percent. Asian shares rose, with the Tokyo benchmark Nikkei 225 stock average gaining 1.4 percent.

Ben Protess, David Jolly and Bettina Wassener contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=431835457d49853847cff33f1769cb55

Société Générale Rises as a Global Worry

But Société Générale, France’s third-biggest bank, has been stirring financial markets once again on concerns about its big holdings of the debt of shaky European neighbors like Greece.

Although its shares closed slightly up on Friday, Société Générale’s stock has fallen more than 40 percent since mid-July and helped pull European bank stocks down earlier in the week. That volatility is a big reason that France on Thursday night imposed a temporary 15-day ban on short-selling — negative bets — against financial and insurance company stocks.

Why does Société Générale matter?

Jitters about the bank’s stability reverberate in New York and around the world because, among other things, Société Générale is one of the biggest global players in equity derivatives — financial instruments meant to protect investors against price plunges in stocks. It does business regularly with the likes of Goldman Sachs, JPMorgan Chase and Deutsche Bank.

“They have significant outstanding derivative exposures, which makes them systemically important,” said Kian Abouhossein, an analyst covering European banks for JPMorgan Chase. “They are important to the financial system, not just in the U.S. or Europe, but globally.”

What’s more, Société Générale has something of a history. It achieved notoriety during the last financial crisis when a rogue trader for the bank, Jérôme Kerviel, lost his employer 4.9 billion euros, or $6.7 billion.

Société Générale may be even better remembered for its disastrous entanglement of derivatives contracts with the giant insurer American International Group.

The A.I.G. contracts protected Société Générale from its large stake in troubled American mortgage securities — but only after the United States government bailed out A.I.G. in 2008 and agreed to pay companies like Société Générale 100 cents on the dollar. When Société Générale was eventually revealed to be one of the largest recipients of the A.I.G. bailout funds, some critics questioned why a French bank was allowed to cart home $11.9 billion in American government money.

The French government now, as it did back then, is playing a big role in trying to calm markets and protect Société Générale. Investors’ main fear is that the company’s exposure to Greece — it even owns the majority of a Greek bank — and other troubled European countries might cause a panic that drives away its trading partners and disrupts the derivatives market.

Some investors even worry that Société Générale’s holdings of French government bonds might become a problem if ratings agencies downgrade France’s sovereign debt. So far, though, the ratings agencies have been nearly as loud in their denials that they plan such a downgrade as the French government and Société Générale’s executives have been vociferous in insisting that the bank is on solid footing.

In any case, the rumor-driven run on Société Générale is already costing the company money. It has been forced to pay significantly more than some of its sturdier European banking peers to borrow, according to several market participants.

Analysts point out that Société Générale has a strong balance sheet, but they say that panic in the markets can undermine even strong financials.

Mr. Abouhossein, for one, says he thinks the market fear is overblown — as is the risk to Société Générale, even if it were forced to take write-downs on the debt of other troubled euro countries, like Italy and Spain.

“French banks can always borrow money from the European Central Bank,” he said.

In fact, many European banks were doing just that this week. On Wednesday, commercial banks’ requests for short-term loans from the central bank spiked to a three-month high.

Société Générale officials have spent much of the week arguing that the market’s fears were unfounded. On Thursday, the bank’s chief executive, Frédéric Oudéa, described rumors that Société Générale was having trouble raising money as “fantasy.”

And in fact, on Thursday Société Générale was able to raise $2 billion in overnight money — although it reportedly paid higher interest than a more stable European bank like Barclays or Rabobank would have had to. The bank is also still lending out money in the overnight market, which is typically interpreted as a sign of strength.

Société Générale’s direct exposure to Greece is not nearly as large as the exposure it had to the American housing market going into the panic of 2008. Nonetheless, it has been unnerving investors with write-downs like the 268 million euro charge on its Greek holdings the bank announced early this month.

Just as many other large European institutions did, Société Générale bought into sovereign debt at a time when those purchases looked mostly risk-free.

It amassed about 18.2 billion euros of exposure to Portugal, Ireland, Italy, Greece and Spain — almost as large as the bank’s 19.2 billion euros in holdings of French debt, according to the European Banking Authority. The sovereign debt of most of those other countries has recently been downgraded, hitting the bank’s portfolio.

But analysts say Société Générale, like other European banks, can count on the support of regulators.

In the recent agreement for the latest Greek bailout, Société Générale was among the banks that agreed to forgive about one-fifth of the value of the country’s debt. As part of that deal, a pan-European fund is supposed to make money available to help banks that may need assistance covering their losses on Greece — although each of the 17 euro zone nations’ governments must still vote on whether to finance the bailout fund.

Société Générale, in other words, may be as solid — or not — as the euro union itself.

“I don’t think the euro is in danger,” Mr. Oudéa, Société Générale’s chief executive, said Thursday. “The governments are very attached to the single currency and lucid about the efforts that must be made.”

Eric Dash, Nelson Schwartz and Jack Ewing contributed reporting..

Article source: http://www.nytimes.com/2011/08/13/business/global/global-worries-about-the-french-bank-societe-generale.html?partner=rss&emc=rss

Shares Suffer Again in a Blow to Market Confidence

After the rebound in the markets a day earlier when the Federal Reserve promised to keep interest rates near zero for two years, investors appeared to pay closer attention to the Fed’s grim assessment of the prospects for the economic recovery and jobs growth.

Investors fled any form of risk and poured into safe-haven investments like Treasury securities and gold, resuming the trend of the last few weeks. Confidence was shaken in the financial health of some of Europe’s banks and what their problems might mean for banks in the United States. Bank stocks led the sell-off in the United States, shedding nearly 7 percent.

Most European markets have entered bear territory, dropping more than 20 percent from recent highs, and the S. P. 500-stock index is not far behind, lopping off 18 percent since its recent April 29 peak.

Meanwhile, signs of stress are emerging in the short-term financing markets in Europe, where banks borrow billions of dollars everyday from one another and other lenders to finance loans and investments. 

Although borrowing costs for banks in the United States and Britain have  risen modestly, those for European banks that lend dollars to one another have doubled in the last 10 days to their highest level in the last two years. Still, borrowing costs are roughly one-fourth of where they were during the peak of the financial crisis.

On Wednesday, concerns about Europe’s debt crisis swirled across trading floors in New York. For yet another day, the stock market swung back and forth with ranges of hundreds of points. Stocks tried a late afternoon rally, only to plunge anew toward the close.

They finished steeply lower on Wednesday as each of the three main indexes dropped more than 4 percent, generally wiping out the gains of the previous day.

The last time there were three consecutive days of 4 percent moves in the S. P. was in October 2007.

The Standard Poor’s 500-stock index lost 4.4 percent to close at 1,120.76. The Dow Jones industrial average ended down 519.83 points, or 4.6 percent, at 10,719.94.

Few are risking a prediction that the market has hit a bottom. It will take a strong dose of rosy economic reports to start to pull stocks up. But instead of being buoyed by positive sentiments, investors are increasingly worried that governments in the United States and in Europe are unable to solve economic problems that may now be getting out of hand.

The fear is that policy makers have few weapons left to reignite growth now that United States interest rates have been pushed close to zero and any fiscal stimulus appears to be off the table in Washington.

“The market psychology is such that investors no longer seem to know who or what to root for, and all that they do know is, according to the Fed, that rates will remain low until the middle of 2013,” said Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan Company.

As Europe’s debt crisis has spread into nations at the heart of the euro zone like Italy and France, it has added a new level of anxiety to markets. There are concerns that France could be overwhelmed if it is called upon to participate in any support for heavily indebted nations like Spain or Italy, and also bail out some of its own banks that hold large amounts of government debt from those shaky countries.

Some French bank stocks fell sharply after there were signs of some stress in bank funding rates in Europe.

Borrowing costs for European banks that lend to one another have doubled to 60 basis points since the end of July, although that is still well below the nearly 200-basis-point level hit at the height of the financial crisis.

Nevertheless, banks were the hardest hit sector in the United States stock market over fears of how vulnerable they are to the troubles in Europe.

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