No sé si es exagerado lo que
dice, pero ya sabes las enormes dudas que tengo sobre la banca europea y la
española en particular… Esto es lo que explica Daniel Lacalle:
Eurozone banks have
fallen dramatically in the stock market despite the results of the stress tests
carried out by the ECB. EU
Banks Index is down 25% on the year despite year-long bullish recommendations
from almost every broker. This should not surprise anyone because we have seen
in the past that these tests are only a theoretical exercise. Moreover, stress
tests’ results are widely challenged, and rightly so, because the exercise
starts with the most ridiculous premise in economics: Ceteris Paribus, or “all
else remaining equal”, which never happens. Every asset manager knows that risk
builds slowly and happens fast.
Disappointing earnings, rising risk in the
eurozone as well as in their diversification markets such as emerging
economies, weak net income margins and low return on tangible equity are
factors that have contributed to the weak performance of European banks. Investors are rightly suspicious
about consensus estimates for 2019 with expectations of double-digit EPS growth
rates. Those growth rates look impossible in the current macroeconomic
scenario.
Eurozone banks have done a good job of
strengthening their capital structure, reaching almost a one per cent per annum
increase in Tier 1 core capital. The question is whether this improvement is
enough.
Two factors weigh on sentiment.
1.-More than EUR104 billion of risky “hybrid
bonds” (CoCos) are included in the calculation of core capital.
2.-The total volume of Non-Performing Loans
across the European Union is still at around EUR 900 billion, well above
pre-crisis levels, with a provision ratio of only 50.7%, according to the European
Commission. Although the ratio has declined to 4.4%, down by roughly 1
percentage point year-on-year, the absolute figure remains elevated and the provision
ratio is too small.
This is what I call the “one trillion
eurozone timebomb”. One
trillion euro risk when the MSCI Europe Bank index has a total market
capitalization of around EUR790 billion.
(Source: Bloomberg, Bologna, Miglietta, Segura)
Let us focus on the CoCos, because it is a
less commented issue.
The EUR104 billion of CoCos can be a
double-edged sword. On one side, they have been one of the favourite
instruments to improve core capital rapidly. It was a very popular instrument in
recent years to reinforce
capital and diversify funding sources. On the other hand,
it is a highly risky asset that can create a domino effect on the equity and
the other bonds of the entity. Let us face it, the idea that a CoCo can default
with no contagion risk to the rest of the capital structure is simply
ludicrous.
These CoCos are hybrid bonds. Rating
agencies assign them up to a 50% of ‘equity’ component because the
investor can lose
the entire coupon, as well as part or all the principal if
the issuer’s capital ratio falls below 7% or 5%.
These high-risk bonds have been issued
widely and with great success in a world in which investors were hungry for
some yield in the face of falling interest rates when many assumed the rising strength of banks.
It was almost a “no brainer”. Core capital was rising, banks were stronger than
ever, and the yields of these Co-Cos ranged between 4 and 7%. Except the risk
was much higher.
In 2011, European banks issued 10 billion
euros in these products with returns that reached
10%. It seemed a safe business with almost no risk of default.
The policy of central banks and financial
repression, once again, led investors to take more risk for lower yields.
By 2017, Eurozone banks had issued more
than 70 billion
euros with yields that fell to 4%.
From 10% to 4% yield as risks were
gradually building, bank stocks were falling and economic data began to
disappoint.
These products were extremely popular
because few investors thought that the banks would have no problem
meeting the required 10% Tier 1 core capital figure. The risk of
breaching the core capital threshold seemed impossible.
“Impossible” and “no risk” are very
dangerous words in any asset class. In hybrid bonds, it is reckless to believe
in no risk.
A recent paper (Contagion
in the European CoCos market) by professors Pierluigi Bologna, Arianna
Miglietta and Anatoli Segura, concludes: “The recapitalisation of the banks as
a going concern provided by CoCos cannot be detrimental for the stability of
the rest of the market. Should the operational features of CoCos keep on
proving destabilising in future stress situations, rethinking their role as
bank regulatory capital tools would be necessary”.
Unsurprisingly, CoCos have fallen sharply
and created a domino effect that impacts equities as well.
The idea that a bond can default with no
threat to the equity or solvency of the issuing bank could have only occurred
to central planners with no clue of risk and contagion.
Eurozone banks bounced in late August
while forward earnings estimates were falling (see above).
Risks in CoCos are evident. In NPLs,
concerns are mounting:
+Weaker earnings from the borrowers due to the slowdown. According to
the BIS, the percentage of large zombie companies (those that cannot pay
interest expenses with operating profits) has soared to 9% of quoted names.
+The need to accelerate recapitalization to
avoid the next crisis will make it less easy to refinance NPLs.
+The impact of the global slowdown in
banks that had opted to grow in emerging markets, commodities and public
infrastructure financing.
Anyone who believes these two problems
will be solved by extending quantitative easing and low rates has learnt
nothing from the past years.
What these risks show is that eurozone banks need to implement a
much more aggressive recapitalization plan. Capital increases
and eliminating cash dividends will likely have to return. Managers do not want
to do it because shares are too low according to them. However, waiting for a
bounce has proven to be a big mistake. 2018 was the year of the perfect
combination to drive banks shares higher: Confidence in the eurozone, the
likelihood of rate hikes, improvement of fundamentals and earnings growth. None
of it happened. Waiting for things to get better for asset classes is not
enough.
Eurozone banks are better than three years
ago. They are nowhere close to having solved their challenges.
Abrazos,
PD1: Resumen de los problemas
de estos días:
La banca: si piensas que está
muy barata, puede abaratarse mucho más. Mira los bancos griegos:
No creas que solo son los
griegos otra vez… El Deutsche Bank tampoco va bien:
Las FANGs (Facebook, Amazon,
Apple, Netflix y Google), que eran las que lideraban todo, de capa caída:
Con Apple pinchando
expectativas, Netflix fatal y Facebook horrible: % Below 52-week High...$FB:
-40% $AAPL: -20% $AMZN: -26% $NFLX: -36% $NVDA: -49% $GOOGL: -20%
Nada nuevo, todo lo que se pone
de “moda” y sube demasiado, acaba por bajar…
Fiasco en Renault por
corrupción, siempre lo mismo, la enorme tentación a un enriquecimiento
personal, a confundir lo ajeno con lo propio, como los políticos…:
Por aguantar, no aguanta ni el
bitcoin, que era lo que se esperaba (esa afición de los inversores a invertir
en rarezas pensando en que se van a forrrar!!!), y que siguiera bajando +. No,
no se sujeta tampoco (ayer perdió los 5000 y lo que le queda por bajar aún):
La prima de riesgo de Italia:
Esperemos que España aguante,
aunque permítame que lo dude…, demasiado populismo en España.
Y encima los EEUU tienen
alternativas:
Y de la macro, no te digo nada,
mal en Europa y peores previsiones en EEUU:
PD2: Mientras que en Alemania,
donde nacen casi los mismos por cada mil habitantes, invierten 735 euros por
mujer embarazada al año, en el país la media es de 7,6 euros anuales…
España no es país para embarazadas
