Reuters is reporting this afternoon that:
Swiss bank Credit Suisse plans to tap investors for a "substantial" capital raising to fund a restructuring of the bank under new Chief Executive Tidjane Thiam, the Financial Times said on Thursday.
Last night we had DeutscheBank admitting it was facing major losses.
Credit Suisse is now saying it might need SFr5 billion and the main reason seems to be to pay for losses and a resulting restructuring.
Twice in twenty four hours may just be chance, but this is also the pattern that precedes financial crises.
Yes, I admit I am being a pessimist right now, but any other option looks unwise to me.
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Northern Rock in the UK, and signs of subprime borrower distress in the USA by carefull observers, both in 2007. Perhaps the distress of raw material producers might be a current equivalent. The house price bubble in the UK seems unhealthy, is it sustainable? We will find out in due course.
Gar Alperovitz in the USA says that we have entered a period of ” punctuated stagnation” this due to a combination of widening wealth divide between a rich minority and the rest of the population and and increasingly stressed environment. This view seems similar to those of many other commentators.
yes- I remember RBS ‘falling into the arms of Government'(to use Jamie Galbraith’s phrase) despite the implicit denial of the need for the latter in their financialisation ‘miracle.’
If I remember rightly, Fred Goodwin breakfasted at the Ritz that day.
To most people, the bizarre accounting that allows huge bonuses and wealth syphoning WHILE being bankrupt needs a good deal of elucidation.
Richard, I’m sorry but what is happening at those two banks is nothing like 2008.
1) Deutsche Bank is writing down goodwill on two acquisitions that it is divesting at a loss:
– Postbank, which it bought in the aftermath of the financial crisis at far too high a price because it needed to shore up its stable funding base
– Hua Xia Bank (20% stake), which is affected by the stock market turmoil and debt crisis in China.
The sale of both of these was advertised some time ago. Clearly, as they are both going to be sold at a massive discount to book value, there must be a P&L hit. But these are strategic divestments, not sudden losses due to value collapse in tradeable securities.
DB is also increasing provisions substantially against expected litigation, which comes as absolutely no surprise since it has been warning for some time that there are potentially very expensive lawsuits on the horizon. The dividend suspension is the only mildly worrying action, but that may be simply be a prudential decision because its capital is still below that of its rivals and regulators are moving the goal posts.
The writedown of goodwill on Postbank and Hua Xia Bank has no impact on DB’s CET1 capital, since goodwill is excluded from that anyway.
2) Credit Suisse is raising capital because of higher regulatory capital requirements and to absorb restructuring costs.
I’ve been watching both banks for quite a while and have written extensively about Deutsche Bank. Both have been badly in need of restructuring since 2008. Neither is about to fail. They are belatedly divesting a lot of their investment banking activities (and in DB’s case, retail too), and shrinking down to a smaller, more resilient core supported by larger capital buffers. This is a good thing. But it involves losses, of course. In DB’s case, the losses include 23,000 jobs.
Respectfully France’s, I note quite a lot of people more experienced than you seem to think matters are rather more complicated and unexpected than you suggest
I note your opinion but if all was as you would have it no one would be taking any notice now
And, as an aside, it would also be the case that their accounts had been mis-stated for some time
Richard,
Do you have any experience in banking? Or as an equities analyst? Or are you just making statements you have no particular evidence for?
All the reports I have read suggest that what Frances say is true. Added to that, the DB share price has actually been rising for the last week – suggesting that investors are aware of the problem and divesting weak business arms there is seen as a positive.
You should also not that these are 3rd quarter results. Not accounts. So suggesting they have been mis-stating their accounts is just mud slinging. You have zero evidence for it. Not only that, goodwill is only written down annually in accounting terms.
I have noted the market response
Do you think that reflects reality?
Do you think the equity markets get their view right when they hit 7,000 in the UK?
Shall we look at fundamentals here and not the froth? That’s what I am quite good at. Equities analysts are about as far removed from that as it is possible to get
DB is up 0.8% today. 5.8% on the week. market reponse isn’t exactly bad for them.
Equity markets don’t always get everything right, but there are plenty of smart analysts out there with a much deeper understanding of markets and specific companies than you. Because as I understand it you have no relevant experience – other than being an armchair commentator.
Have you ever worked in markets? Or if you claim you are so good at looking at the fundamentals do you invest your own money, or your pension funds?
My qualifications are well known
That arbitragers see an opportunity in what is happening us no evidence that I am wrong
Right, but your qualifications are as an accountant (and quite a while since you have been practicing actively it seems) and a tax campaigner.
Not in banking, finance, trading or equity analysis. Or indeed as an economist, other than self-describing as one.
Forgive me if I take the opinion of those who actually practice what they preach over yours. Especially as you have nothing other than your own opinion to back up your statements.
As I asked – do you invest your own pension portfolio through a SIPP, or do you just leave it some pension fund advisor to do it for you? If you are as good as you say you are, shouldn’t you be doing it yourself?
I think you might read a little too MCd Tim Worstall
My most recent meeting as a practicing accountant was last night
And I am a Professor of International Political Economy
So you still have an accountancy practice, registered and paying tax? It looks like you haven’t been a practicing accountant for a long time. Nor have you had any direct experience of finance or financial markets.
You are a one-day a week Professor. With no higher academic background. In my day, we called them lecturers – and even then most of my lecturers were post-Docs. You have an undergrad degree from Southampton, and claim that you didn’t even listen to your economics courses.
But please, by all means tell us you are an economics expert and a markets guru, with no experience whatsoever. Certainly in comparison to the many real experts out there.
I ask again, if you are as good as you say you are, do you invest your own pension funds? And if you do why aren’t you already retired as you must be as rich as sin if you are as good as you say you are.
Jack
It would appear you are here to troll, make unfounded allegations and time waste
I have better things to do
That was your last comment
Richard
I hate it when you bicker the small stuff.
Banking crises come and banking crises go, but the really systematic failures tend to happen much less frequently than each decade.
You think we’re talking the small stuff?
I beg to differ
I do not believe that the good professor thinks that these banks are going to fail tomorrow, but the profligate culture in the financial world from 2007 remains and attempts to regulate Banks have been tepid to say the least.. At friend of mine in a hedge fund admitted that he
had lost $500 million. He was not bothered as he would get his bonus for successful trades., and he opines that he will make it up later.
To me that is ” Casino Investing “.It remains imbedded in the culture of the major financial centres.
The whittling down of Dodds Francs in the US shows that the financial world wants self regulation. Then greed and irresponsibly
takes over..
Professor Ferguson in Dublin saw the Celtic Tiger disaster coming. They called him Dr.Doom. He was never a banker.
Don’t just study two banks. Wake up and see the smoke on the horizon. There is no smoke without fire.
Professor Murphy is right to be concerned.
Frances may have a point. The tell-tale signs of distress from banks now may be somewhat different from in 2008 but Richard’s original post is still valid. We can all look back to events prior to 2008 and be absolutely mystified as to why so many so-called experts missed key signs and couldn’t see what was coming. This time next year we could all be asking the same questions.
The underlying problem is the build up of private debt in world economies. The Tory government have played their part. They see a healthy economy as one in which banks are happily lending and companies and individuals are happily borrowing. The banks are creating asset/liability pairs as they lend. It’s fine when the lending is accelerating. We have a credit fuelled boom as the borrowers spend their assets, and the topic of conversation at every social gathering is about the increase in house prices. Some years later when the liabilities of that bank money creation remain in the economy but the assets have long since disappeared, it’s a different story.
Still it all worked well enough to win them a small majority in May. It’s bust time to follow though!
Frances has a point in that this time things will not be the same, but the never are
I have a point that having major banks in obvious trouble at a time when there are clear signs of a credit bubble bursting and the real economy facing difficulty is an obvious indicator of stress to come
I am not sayting it will be 2008n again: it won’t be. History does not repeat exactly. But to suggest there is no issue to worry about is, I think, just wrong
have Deutche Bank’s part of the 201 billion loan to greece, ireland ,Spain etc been all bailed out by the ECB?
Have been following markets for some time and the best qualified to post remarks on it and find Frances Coppola’s points, to be blunt, totally missing the point. Frances seems to have become rather blinkered and at times shows her ranking by losing the plot. The EU is not in a good position if markets and banks fail and the UK is going to be hurt massively, when (not if), they do. I’m just glad I don’t have a mortgage any more or have investments to worry about, because I certainly would be worried. There is no safe place within any market at the moment as the Chinese will do whatever they need to in order to bolster their economy. The dumping of $93 billion which must have put the frighteners on the US, the warnings that BRICS is failing and AIIB stressed, all the signs are there that another crash is imminent within the next two years(or sooner). Asset divesting and stripping can only be taken so far and alternatives are not being introduced when and where they should be. Some of the best minds in global banking,markets, fiscal and economic policy are sending out the same messages and advising remedies, but few are actually paying heed. Some people will have egg on their faces, others will be noted for having a good head on their shoulders. The reason I follow this blog.
I am no analyst, or economic expert of any kind, I am a basic middle class consumer with big mortgage…. I find all your comments intriguing and when I think one of you have convinced me in some way, I read the next post and fell the same way. I get no comfort in any commentaotor, analyst, expert etc… comments anymore, at the end of the day none of you really know, it’s just your opinion.