This is an article from the investing website that looks back at market (and saver) concerns about the health of big banks, particularly European ones.
After Credit Suisse, it is the French giant of the banking sector that is coming under pressure. In fact, it was BNP Paribas stock that was shorted the most Monday, with a total of $1.68 billion in bets against the bank’s shares, the highest percentage among the 17 banks for which data is available, according to data analysis firm S3 are .
Last week the stock Credit Suisse was massacred on the stock exchange and the management of the major Swiss bank had to spend their weekend making sure about the solvency of the house.
Investor concerns about Credit Suisse have seen Credit Suisse shares fall over the past few days, but short sellers appear to be interested in another bank.
Do we need to worry?
The answer is yes and no, and it’s important to remain objective and nuanced.
You have to look at the equity of the bank, their solvency ratios.
But just looking at it does not mean taking into account the potential risks of accidents, for example (and not accidentally) in the derivatives markets with a position of these banks that could prove catastrophic in case of an extreme event in the markets what we are witnessing with the energy crisis!
Nor does it take into account the rising cost of risk as Europe’s industry and business declined. But of course all the big banks finance the economy. This is known as the cost of risk.
If insolvencies in the real economy increase, then the risk costs, i.e. unpaid loans to the banks, will also increase.
At the end of the day there will be a significant drop in earnings and possibly, if the crisis is as deep as it is long-lasting, a possible capital problem. But that will happen later and it is a phenomenon that will gradually materialize over the next 12 to 24 months if it has to happen and we will see it in studying the balance sheets of the banks that I oversee for my STRATEGIES subscribers letter .
We are not there.
A logical and predictable drop in prices
It is normal for bank share prices to be under pressure as markets significantly lower their earnings forecasts for banks. Less profits, less dividends, hence prices oriented down and sold short.
So there is nothing to really wonder about.
Finally, if the situation should go really wrong, a bank like BNP is a systemic bank, simply too big to fail, because if the public authorities drop a bank of this size, the entire European banking system will collapse.
So there is no need to walk in all directions. However, this is to remind us of the need to spread risk and diversify both your wealth and your wealth.
If you ask questions and want to go further, you can subscribe to my STRATEGIES Letter for only 98 euros and, in addition to the more than 85 files already published, you will not only have access over the next 12 months, but also but above all it will save you from doing stupid things that will cost you much more than 98 euros, because a bad investment is usually expected to result in thousands of euros in losses ! He is here to invest in your wealth management and in the STRATEGIES letter.
“Insolentiae” means “impudence” in Latin.
To write to me firstname.lastname@example.org
To write to my wife email@example.com
You can also subscribe to my monthly newsletter “STRATEGIES” which will allow you to go further and in which I will share with you the concrete solutions you need to implement to prepare you for the next world. These solutions are articulated around the PEL approach – Heritage, Employment, Location. The idea is to share with you the tools and methods to build your personal and family resilience.
“To stifle peaceful revolutions, one makes violent revolutions inevitable” (JFK)
“This is a ‘presslib’ article, which means it may not be reproduced in whole or in part unless this paragraph is subsequently reproduced. Insolentiae.com is the site where Charles Sannat speaks daily, providing unabashed and uncompromising analysis of business news. Thanks for visiting my site. You can subscribe to the daily newsletter free of charge at www.insolentiae.com. »