How bad are the European banks?
Overnight both Credit Suisse and Deutsche Bank were told they will be dropped from the STOXX Europe 50 index, since their stock price has cratered.
The banks will be replace with a tech company and a construction firm.
As Deutsche’s stock price is just above its 52-week low, this action will force more selling as firms who hold STOXX Europe 50 funds have to rotate out the bank shares. A similar situation is happening with Credit Suisse.
How many red flags do we need to see on Deutsche before something is done. The bank failed the Federal Reserve’s stress test two years in a row, the share price is bouncing near single digits and the bank has vast exposure to the Italian banking system, which is not healed by the actions over the weekend.
Are we waiting for one morning when fellow European banks decide that the bank’s collateral is no good in the repo market? Has that happen already?
Lehman Bros. was turned down in tri-party loans with the New York Fed because of poor collateral a month before it imploded.
Confidence is a slippery commodity on the street and in the pits. What could a Bank of England rate cut this week do to it’s already fragile trading book?
We won’t know much until it implodes, but a good call is that the Fed and IMF along with the EU and German banking regulator Bafin are holding telephone discussions on this topic.
A canary in the coal mine could be stories coming out suggesting Germany wanting to repatriating its gold from the New York Fed, which is allegedly holding it.