Post by wildoats on Jul 8, 2016 8:14:19 GMT 7
BREXIT and the potential European Banking Crisis
The Bank of England recently relaxed regulatory requirements on the UK banking sector and thus effectively released 150bn pounds of new lending to businesses and households. But this did nothing to stem the ongoing fall in UK bank shares.
Bank shares have fallen, partially on news of overwhelming cash outflows from UK commercial property REITs had forced the suspension of redemptions from some funds (see UK Property Funds Suspend Trading after Brexit). But the focus was not just on the UK, but on Italy.
Big falls in EU banks stocks post Brexit have brought into focus the parlous state of the Italian banking system, where non-performing loans are running at some 17% -- ten times more than in the US. The world’s oldest bank, Monte dei Paschi, has stuck its hand up for a bail-out but there is a problem.
As of this year, new “bail-in” rules have been in place in the EU. These prevent any direct EU injection of bail-out funds ahead of bank bondholders taking a haircut on the value of their holdings, thus reducing the bank’s interest cost as an inside form of bail-out, or “bail-in”. But the issue here is that most of the bondholders of the likes of Monte dei Paschi are mum & dad investors, not global hedge funds or sovereign wealth funds.
Italy is thus calling for exemption rules to be triggered with regard bail-in, as is allowed in the case of a “systemic event”. Is the Brexit vote a “systemic event? Germany says no. Forget about the Netherlands being the next in line. Talk is now of “Italeave”. No doubt freelance exit consultant Nigel Farage will stick his hand up as an advisor.
The Italian bank sector is down 50% post-Brexit.
Credit
The Brexit didn't cause the current Italian Banking Crisis, but it was certainly shone the spotlight on it.
I'm surprised by the resilience of the FTSE (bounced over 1% last night) post BREXIT, but I put a lot of that down to the GBP/USD exchange rate hitting a 31 year low on the 5th July, thus making British exports more competitive. Some are suggestion parity in the not to distant future, though I believe that is a bit of a stretch.
Must be difficult and a bit of belt tightening on the British, living outside the country who rely on an income derived from the Pound. Poor buggers.
As of 6 days ago.
Credit
This has a long way to play out before the 'new normal' is established.
I'm still in Cash.
The Bank of England recently relaxed regulatory requirements on the UK banking sector and thus effectively released 150bn pounds of new lending to businesses and households. But this did nothing to stem the ongoing fall in UK bank shares.
Bank shares have fallen, partially on news of overwhelming cash outflows from UK commercial property REITs had forced the suspension of redemptions from some funds (see UK Property Funds Suspend Trading after Brexit). But the focus was not just on the UK, but on Italy.
Big falls in EU banks stocks post Brexit have brought into focus the parlous state of the Italian banking system, where non-performing loans are running at some 17% -- ten times more than in the US. The world’s oldest bank, Monte dei Paschi, has stuck its hand up for a bail-out but there is a problem.
As of this year, new “bail-in” rules have been in place in the EU. These prevent any direct EU injection of bail-out funds ahead of bank bondholders taking a haircut on the value of their holdings, thus reducing the bank’s interest cost as an inside form of bail-out, or “bail-in”. But the issue here is that most of the bondholders of the likes of Monte dei Paschi are mum & dad investors, not global hedge funds or sovereign wealth funds.
Italy is thus calling for exemption rules to be triggered with regard bail-in, as is allowed in the case of a “systemic event”. Is the Brexit vote a “systemic event? Germany says no. Forget about the Netherlands being the next in line. Talk is now of “Italeave”. No doubt freelance exit consultant Nigel Farage will stick his hand up as an advisor.
The Italian bank sector is down 50% post-Brexit.
Credit
The Brexit didn't cause the current Italian Banking Crisis, but it was certainly shone the spotlight on it.
I'm surprised by the resilience of the FTSE (bounced over 1% last night) post BREXIT, but I put a lot of that down to the GBP/USD exchange rate hitting a 31 year low on the 5th July, thus making British exports more competitive. Some are suggestion parity in the not to distant future, though I believe that is a bit of a stretch.
Must be difficult and a bit of belt tightening on the British, living outside the country who rely on an income derived from the Pound. Poor buggers.
As of 6 days ago.
Credit
This has a long way to play out before the 'new normal' is established.
I'm still in Cash.
