We recently traveled to Switzerland to meet with regulatory policy experts and representatives from the country’s major banks. Switzerland, while geographically small and landlocked, is home to a highly developed and skilled economy. It is one of the world’s most affluent nations, with the 6th highest GDP per capita (3rd excl. very small economies) of ~US$87,000 (Canada at ~US$50,000). Consistent with its longstanding neutrality, Switzerland is…
Insights: Europe
Notes from Sweden: Large Nordic Country; Oligopoly Banking Sector with High Capital Levels
We recently traveled to Sweden to meet representatives from the country’s four major banks and regulatory policy experts. For background, Sweden is the largest of the five Nordic countries by both population (9.7 mln) and economic output (US$570 bln). Of significance, it remains outside of the eurozone, i.e., it has its own currency/central bank (Finland is the only Nordic country in the eurozone; the other three…
Notes from the Netherlands: Eurozone Country Dominated by Two Large Public Banks
We recently traveled to the Netherlands to meet with representatives from the country’s major banks and regulatory policy experts. The Netherlands is the most densely populated large economy outside of Asia, with 16.8 mln people, and is a member of the eurozone. Its developed economy is focused on foreign trade, and it ranks as the second largest exporter of agricultural products in the world. It’s GDP…
Notes from Denmark: Small, Wealthy Country; Well Capitalized Banks
We recently traveled to Denmark to meet with regulatory policy experts and representatives from the country’s major banks. Denmark is the smallest of the Nordic countries by size, but the second largest by population with ~5.7 mln. It remains outside of the eurozone, along with three of the other four Nordic countries (Finland is a eurozone member). It has a developed (mixed) economy focused on foreign…
European Bank Profitability Continues to Recover
Despite a macro driven correction holding back stock prices, Q3 2015 earnings season demonstrated that the recovery towards pre-cycle profitability continues. As the chart highlights, the European banks generated ~€130 bln in “core earnings” in 2007, i.e., before the cycle began (source: Keefe Bruyette and Woods, universe is ~70 banks, accounting for ~90% of system assets). During the sovereign debt crisis in 2011/2012, European bank earnings…
Greek Banks “Stressed” Again, Basically Un-investable
From a systemic perspective, the recapitalization of the European banking sector is complete. So, while capital actions for certain banks are possible (i.e. Deutsche Bank), we continue to forecast limited EPS dilution from capital raises, overall. Moreover, the recovery in European banks from both an earnings and stock price perspective continues to track very closely the recovery of U.S. banks at a similar stage of the…
European Trip to London, Frankfurt, and Madrid: Notes from the Field
A recent trip to Europe – 3 days in London at a European financial services conference, and 1 day field trips to Frankfurt and Madrid – gave us an opportunity to meet with executives from more than 25 financial services companies and agencies (including 19 banks and 3 insurers) representing 9 countries. Notably, the trip reinforced our European investment thesis, although a disparity of country and…
Deutsche Bank Pre-Announces Charges, Possible Dividend Reduction
After the U.S. close last night, Deutsche Bank (ticker: DBK GR) announced a series of write-downs, an increase in its litigation reserve, and a Management Board recommendation to reduce (or possibly eliminate) its dividend in 2015. Most of the announcement was anticipated and/or priced in with the exception of the announcement the bank might eliminate its dividend. As a result, at the time of writing, the…
On Greece, European Fixed Income Markets Remain Calm
The tiny country of Greece is dominating the news – yet again. Notwithstanding the wall-to-wall press coverage and declines in equity markets, it is worth noting that the changes in sovereign yields of other European countries remain muted, reflecting the fact Greece is extremely small, at just 1% of European GDP (< 2% of the eurozone).
Why This Weekend Was About Spain; Not Greece
Greece is in the headlines … again. But in our view, the events of this past month are about Spain, not Greece. There is no need for us to review the Greek soap opera (it is all over the news), but suffice to say, this is the first step in a process that virtually assures a terrible outcome for Greece (either painful internal devaluation, or an…
Syriza Forms Government in Greece
On Sunday, the far left party, Syriza, won the Greek election, and with a smaller (far right) anti-austerity party, has a coalition to form a government. While this could change over the next few days and weeks, the immediate market reaction has been surprisingly muted (given the press coverage). The Greek banks have all fallen sharply and Greek 10 year yields are up over 50 bps.
ECB Announces Quantitative Easing
As everyone knows, the ECB… finally (!)… announced open ended quantitative easing, the details of which are as follows: (a) amount of €60 bln a month until at least September 2016 (or ~€1.0 trillion) according to the capital key, which means purchases are roughly apportioned by GDP of each country. This amount includes existing ABS and covered bonds.