A Look At How Central Planners Are Crushing Banks

A Look At How Central Planners Are Crushing Banks - Financials cartoon May 2016

 

Banks stocks around the world continue to crash today. No, it's not post-Brexit fallout. It's just another case of maniacal central planning gone awry. 

 

The latest news comes from Italy. Here's the wrap from the Wall Street Journal:

 

"In Italy, 17% of banks’ loans are sour. That is nearly 10 times the level in the U.S., where, even at the worst of the 2008-09 financial crisis, it was only 5%. Among publicly traded banks in the eurozone, Italian lenders account for nearly half of total bad loans."

 

Isn't it ironic that the European Commission authorized €150 billion in liquidity support for Italian banks last week? This measure will prove counterproductive as the ECB maintains its negative interest rate policy (NIRP). With no end in sight, Eurozone banks will continue to see a squeeze in their net interest margins. 

 

So, while financial media continues to frame Italian banks as the problem child of Europe, it's more appropriate to turn your attention to the ECB. To be clear, central bank policies have been ravaging Europe's banks for quite some time now. Since the ECB announced NIRP in June 2014, European bank stocks are down -48% versus -6.1% for Euro Stoxx 600. 

 

A Look At How Central Planners Are Crushing Banks - european banks

 

Same story in Japan...

 

The BoJ announced NIRP in January 2016. Since then, Japanese bank stocks are down -27.3% versus -12.3% for the Topix.

 

A Look At How Central Planners Are Crushing Banks - japan bank

 

Meanwhile in the U.S. 

 

Year-to-date, Financials (XLF) remain the worst performing sector in the S&P 500. The XLF is down -6.2% as the Fed has dialed back its rate hike rhetoric. The 10s/2s Treasury yield spread (a rate of change proxy for US growth and bank earnings via net interest margins) hit a cycle low today. (Incidentally, Financials remain our favorite 2016 sector short.)

 

As desperate central planners push interest rates ever lower, banks are apparently struggling to make a profit.

 

Who'd have thought?


Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more

Amazon's New 'Big Idea': Ignore It At Your Own Peril

"We all see another ‘big idea’ out of Amazon (or the press making one up) just about every day," writes Retail Sector Head Brian McGough. "But whatever you do, DON’T ignore this one!"

read more