Bank Bailout Appetite Stymies Systemic Risk

Featuring Keith Mullin

Keith Mullin is a longstanding market commentator on European banks and with political will for bail-ins off the table, he’s less concerned about systemic risk than he is about the overbearing regulation and the incompetence that has saddled the sector with over a trillion euros in non-performing loans. Examining how to get the lending cycle started in Europe, Keith sizes up the opportunities for banks, to see where the likely resolutions and consolidation may occur. Filmed on May 23, 2017, in London.

Published on
19 June, 2017
Topic
Financial System, Europe
Duration
44 minutes
Asset class
Equities, Bonds/Rates/Credit, Currencies
Rating
70

Comments

  • MT

    Martin T.

    21 6 2017 20:26

    3       0

    AT1 - "You need to look at the distance to the trigger". AT1 are known unknowns, and are American options like short gamma trades, who really cares about the capital threshold trigger aka the strike price seriously? When you are long AT1 you are selling the insurance to the bank. You are the one holding nonlinearity to the downside with limited upside. Sure the coupon is enticing like Banco Popular AT1 at 8.25%. About a comment I read about him nailing the takeover of the bank, in Banco Popular's case the short end of the CDS curve was already inverted way before the takeover for €1 was announced. Banks in Europe are not a good investment in equities, that might be fun tactically to play the beta trade but if you want to sleep at night and don't do serious credit analysis, stick with Senior Financials. Oh by the way Commerzbank has had 5 capital raises since it was bail-out by the German government, must be great to be continously diluted...

  • MP

    Michael P.

    21 6 2017 18:24

    0       0

    Informative.

  • JC

    John C.

    21 6 2017 12:50

    2       0

    Great interview. Really like Ian's style moderating. Keith a very smart guy and good high-level commentator been reading him for years. He nailed the Banco Popular saga ('not sure anyone would want to buy these banks'.). Nobody did and the regulators in Spain seem to have forced it onto Santander. With the Coco meltdown there is has to be true that funding going forward will be pinched. As a RealVision research subscriber it's hard to combine Keith's bearishness with JD Research's latest piece on "Time to rethink your views on Europe" and Europe as a 'safe haven'. They haven't even tackled the massive NPLs in their banking system let alone slow growth, low rates, high unemployment, EU bureaucracy, etc. So I disagree with Coaxey and see European bank prices headed to very low levels before they inevitably get recapitalized and bounce back (as happened in the US).

  • AC

    Andrew C.

    21 6 2017 07:51

    1       0

    Fundamentally, Buy low, Sell high ! The banks (in general) won't be allowed to go bust, ergo they will survive, ergo their stock price will be higher in the future. Two years, five years? Dunno, but European bank EFTs seem reasonably attractive. I am curious on the ratio of traders (short-term, <2years) to investors (5-10years) on RVTV.

  • FM

    Fraser M.

    21 6 2017 05:57

    4       0

    A good indication of the environment we live in; European banks are a buy because there won't be any bail-ins. Let's overlook $1trn NPLs, negative interest rates, sclerotic growth in the real economy combined with deflationary effects on business investment, high debt levels, non-existent velocity of money, and a complete lack of price discovery in the credit markets - amongst other things.

    • JC

      John C.

      21 6 2017 12:52

      0       0

      don't forget the CoCo meltdown! (I guess itd technically be a 'ball in' give that Banco Popular's Cocos never even got converted to equity and seemed to have gone straight to zero).

  • YJ

    Yaokai J.

    20 6 2017 05:48

    0       13

    The stuttering + lisp drives me crazy.

  • DS

    David S.

    20 6 2017 04:10

    5       0

    In order to stop government bailouts, the stockholders and bond holders of a bankrupt bank need to pay of the debts of the bank. If there is money left over, the bond holders have priorities before stockholders. I do not agree that the bank depositors should be charged for the bankruptcy like in Cypress. This goes beyond fair. DLS

    • JC

      John C.

      21 6 2017 12:56

      0       0

      I agree and would point out that in Cyrpus they were able to bail in the depositors because it basically was offshore depositors from Russia, Ukraine, etc. etc. Cyrpus is a very nationalistic country and allowing locals to bear the brunt of the crisis would have been unthinkable and political suicide. In Europe I'd expect it to be the opposite as many, if not most, of these banks have local depositors and also local bondholders as well.

    • DS

      David S.

      23 6 2017 01:26

      0       0

      I know that you are not trying to defend the system, but more than off-shore accounts were injured. The Greek Orthodox Church lost a great deal of of money. Who knows how many other individuals, businesses , etc. were caught and were drowned in the same net. Italy is trying to fight the same banking regulations now as it did not work well politically in a small bank in Italy either. DLS

  • RM

    Ronnie M.

    19 6 2017 21:59

    5       0

    A trillion of bad loans and a buyer of banks?

  • HB

    Harald B.

    19 6 2017 21:12

    0       0

    :)

  • DS

    David S.

    19 6 2017 19:30

    4       0

    Net, net. There will always be bank defaults and government bailouts. Willie Sutton rob banks because that is where the money is. The robbers inside the banks know this as well. DLS

    • DS

      David S.

      19 6 2017 22:00

      0       0

      Banks defaults are so persistent over time, that may be where the term bankrupt came from.

    • DR

      David R.

      20 6 2017 12:08

      2       0

      Should bankers be required to have more skin in the game? Or should we become much more restrictive on fractional reserve banking? Or do we believe we can actually develop smarter regulation to prevent the severity of banking crisis's?

    • DS

      David S.

      21 6 2017 20:46

      1       0

      Good comments, but I think bank robbers inside and outside plus politicians will continue to win the game. Look at all the actual fraud in major international banks around the world. There is no shame. DLS

  • LV

    Luís V.

    19 6 2017 19:23

    3       0

    The guest nailed the Banco Popular deal. And the role banks have in fintech is a must discuss idea.
    Congrats.

  • HS

    Hubert S.

    19 6 2017 16:59

    1       0

    "I suspect a lot of it-- has been found to be fraudulent. But that that's not the issue. It's not about fraud. This is about incompetence and ineptitude ..."
    Hot iron avoided. It clearly is about fraud, the two I´s notwithstanding.

  • HJ

    Harry J.

    19 6 2017 14:57

    1       0

    This is wearing me out!

  • AS

    Alex S.

    19 6 2017 14:48

    2       0

    The new music for the video's is much more fitting for this website I must say.

    Really sells this site as a place for professionals to congregate

    • IO

      Igor O.

      20 6 2017 08:38

      1       0

      I like London studio. Very dramatic. Thumbs up to production team.

  • TM

    The-First-James M.

    19 6 2017 14:43

    4       0

    Not sure I agree about the political will for bailouts remaining high, but admit I am no expert. However, I suspect further bank bailouts in the UK would have gone down like a lead balloon with the army of Gen Y idealists who voted for Comrade Corbyn in the UK a few weeks ago, and given the divided political climate in Europe (MSM rhetoric of a Macron triumph aside - I read of record abstained votes and spoiled ballot papers), I suspect bank bailouts on the continent would be a tough political sell if the majority of people suffer as a consequence. Will cause further division and support the continued rise of populist politicians.

  • Js

    Johns s.

    19 6 2017 14:23

    5       0

    Test