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Frankfurt, New York This was the unpleasant conclusion of an unpleasant week for Deutsche Bank. Last Friday night, Friday was official, which many had already feared in the twin towers of Frankfurt Taunusanlage: The only bank was the largest national financial institution undermined by the stress test of the Federal Reserve (Fed).
"The financial institution is accused of being a public pillar for not being able to provide reliable revenue forecasts and substantial deficits in capital planning," says broker Jochen Stanzl. line CMC Markets. "It's a bit like accusing Daimler of not being able to spin his wheels safely to his cars."
The head of the German bank Christian Sewing badured Friday that the bank had progressed in the United States. He said that he would pbad the stress test next year, he told CNBC. A complete withdrawal of American business, it excludes – despite all the problems – "America is next to Germany one of the most important markets for us, and will remain so".
The only good thing for German bankers: Because the stress test failure was expected by many, the Frankfurt currency house was spared another setback on the stock market. On the contrary: The price even climbed 1.1% to 9.16 euros. However, this is only a small consolation, as only last Wednesday the Deutsche Bank stock fell to 8.75 euros to reach a new historic lows. Since the beginning of the year, the least represents about 40%. Commerzbank does not come out much better with losses of about 30%.
The losses of the two German banks may be particularly serious because of manufacturing problems, but they also indicate that investors' mistrust of banks around the world is increasing. In the United States, financial stocks suffered 13 consecutive days of losses, the longest negative series of all time. In Europe, the Stoxx 600 banking index has dropped about 20% since its January high
Deutsche Bank is threatening another problem due to falling prices. Since the stock market value has fallen so much, the institute could come out of the Euro Stoxx 50 stock index in September, reports the "Wall Street Journal". It follows the 50 largest listed companies in the euro area and is considered the main index for many funds. If the bank were to be replaced by another company, its share could again be under pressure as the funds adapt to the new composition of the index.
After the crisis, the next challenge will be raised, warn LBBW banking badysts. Above all, they see in the still high stock of bad debts in the books of European banks a problem. To this is added the low profitability of many euro area banks. In some countries, like Italy and Portugal, the two problem factors go hand in hand.
With the economy up to here robust, German financial institutions have virtually no problem with bad debts. But the big banks suffer from chronic profitability problems. Deutsche Bank succeeded for the third year in a row, with Commerzbank's return on equity just 0.5% in 2017. The LBBW experts are mainly responsible for the slump in the German banking market and the high level of competition.
These structural problems have been accompanied by new worries in recent weeks that weigh on all European banks. Experts at DZ Bank have identified three risk factors: weakening economic growth in the euro area, expiry of the bond buying program of the European Central Bank and growing political tensions caused by turmoil in Italy and the growing danger of a global trade war. USA
The growing mistrust of investors towards banks is also reflected in the bond market. In this country, the Ibox Banks Senior Index has dropped 1.4% since the beginning of the year. Analysts at DZ Bank are worried that "the tension in the bank bond markets remains high, especially if the sentiment is not only weaker because of tense climatic conditions on investors' risk appetite, but at the same time worsens economic data. " 19659003] The more hostile weather conditions also hit the bank stocks on Wall Street, and doubled as well. On the one hand, the threat of a trade war fuels fears of a slowdown in global economic growth and, on the other hand, it forces investors to invest in bonds d & # 39; State.
If investors buy longer-dated bonds, the yield curve will flatten out, which means that the gap between short-term and long-term yields will decrease. It's bad for banks' margins in loans. Currently, the US yield curve is as flat as it has been for more than a decade.
"It's a big deal," says Matt Maley, equity strategist with Miller Tabak's badet manager. "All the more so as we get closer to a reverse interest rate curve" – an important indicator of an imminent recession.
Bank stock prices recovered somewhat on Friday
This was due to stock repurchases and dividends that financial institutions announced after Thursday's stress test results. According to the Barclays business bank, major US banks will pay $ 164 billion to shareholders over the next 12 months. That's 22% more than last year. The four largest US institutions, JP Morgan Chase, Bank of America, Citigroup and Wells Fargo, are spending a total of $ 110 billion.
But there are a number of risk factors that could affect the industry in the future. It would be conceivable that Europe's bad mood is also spreading in the United States. "The correlation is not as strong as before the financial crisis, but both sectors tend to move in the same direction," says Maley.
In addition, the Fed's interest rate hikes, often delay on the markets. On top of that, the lingering uncertainty caused by US trade policy is already preventing some companies from investing and hiring employees.
Chris Whalen, an independent bank advisor, estimates bank payments will decline again in the coming years. "Banks have been overcapitalized, as US resistance tests have shown this year, but default rates on loans are slowly but surely increasing, and this will also affect dividends and share buybacks," he said. explains Whalen.
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