No European vacation for Santander & DB

You really need to pay attention to the European bank crisis that’s ongoing. This crisis will be the next leg down for the markets and the European Union, perhaps as soon as this fall.

Deutsche Bank announced it is closing or merging some 190 or so branches in Germany, due to the need for cost cutting. It’s US shares are down 56% over the last year and it’s dumping up against a 52-week low.

The German national bank is bleeding talent and executives and trading pros hit the exit knowing that they will never get the bonuses from the last 5 years, because of the failing stock price. All of the bonus comp had to be vested for 5 years before being available to cash out.

With the cratering stock price over the last 5 years: down 72% from a high of $55, there’s no way anyone will get money out of the bank.

On the Italian bank front, there is a glimmer of hope as an EU court said that the new rule where all bank rescue plans need to start with a bail-in, which means bond and share holders must get the first haircut or losses before rescue money can be pumped in, is not written in stone and has exceptions.

Italian banks sold depositors junior-creditor notes as a safety net for their deposits. However, those notes are the first to get wiped out in a bail-in, so depositors lose the worst. The court ruled that a bail-in can occur without wiping out these junior creditors in certain instances, but did not elaborate on those conditions.

Either case, the EU banking regulators are attempting — in DB and the Italian bank ruling — to make a gentler crash landing for these troubled banks.

Remember Santander and DB both failed the Fed’s stress test earlier this year, by not having enough capital in reserve for an economic downturn. Well Brexit appears to have brought the economic downturn these European banks were not prepared for.


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