Europe Bank Recovery Hit By Market Tumult
January 22 2016 - 3:02AM
Dow Jones News
(FROM THE WALL STREET JOURNAL 1/22/16)
By Margot Patrick, Max Colchester and Jenny Strasburg
LONDON -- Europe's banks had been on a long, slow march to
recovery. But this month's market turmoil is likely to hinder that
journey and, in turn, could threaten the Continent's economic
prospects.
Worries over China's slowing economy, plunging oil prices and a
deepening crisis at Italian banks have sent shares of European
banks into a tailspin just as many of those banks were making
progress at stabilizing their businesses after years of financial
and economic crises. In the first three weeks of 2016, the European
bank sector has fallen 16%, compared with a 10% slide in the
broader Stoxx Europe 600 index.
The downturn threatens more than bank shareholders. Analysts
said the conditions mean Deutsche Bank AG, Barclays PLC and
Standard Chartered PLC could take longer to carry out yearslong
restructurings and improve returns under new chief executives
installed last year. If conditions continue to deteriorate, banks
could ratchet back lending and central banks may again have to step
in to encourage banks to pump credit into the wider economy.
"It is a key risk at the moment," said Filippo Alloatti, a
senior analyst at Hermes Credit.
Shares in Deutsche Bank fell 3.4% on Thursday after the bank
said challenging market conditions helped push it to a full-year
loss for 2015. The German bank's shares are nearing levels last
seen in 2009 in the heat of the global financial crisis.
Other lenders starting the day in the red got a boost after
European Central Bank President Mario Draghi signaled that the bank
may decide to provide more stimulus at its governing council's next
meeting in March.
Mr. Draghi expressed confidence in the health of the financial
system. "I'm confident that all the actions that have been
undertaken have produced a much stronger banking sector than it was
before the crisis," he said. "The gyrations . . . in other times
would have severely tested the resilience of the banking systems.
So far we have seen that they stand pretty resilient."
Standard Chartered's shares have tumbled 15% this year on
worries that falling currencies and rising bad loans will delay its
attempted return to health under new Chief Executive Bill Winters.
Larger rival HSBC Holdings PLC, which is retreating from some
countries to double down on Asia, also is exposed to currency and
market falls throughout Asia.
Barclays, whose shares also are off 15% this year, this week is
starting to cut about 1,000 investment-banking jobs, mainly in
Asia, in its latest attempt to lower costs and divert resources to
more profitable parts of the bank. Thousands of jobs already have
gone from the bank over the past few years, but new CEO Jes Staley
is trying to accelerate the restructuring.
The sector's woes are a reminder of how the Continent continues
to suffer from its slow progress at cleaning up its banks. Many
large European lenders for years delayed efforts to fortify their
capital cushions. Even now, eight years after the financial crisis,
Deutsche Bank, Barclays and other giant lenders are scrambling to
convince regulators and investors that they have enough capital to
weather another financial storm.
"The European banks are in such a state of delayed recovery,"
said Stephen Schwarzman, chief executive of private-equity firm
Blackstone Group, at a World Economic Forum panel discussion. "I
don't know what they were doing for years. It's a mystery to
me."
Analysts say most of Europe's large banks are resilient enough
to ride out a global slowdown. But persistently low interest rates
and waning client activity in markets could hurt earnings and limit
dividends.
If the outlook continues to darken, there is also the prospect
of a negative feedback loop, in which banks pulling back on lending
and exiting from markets weaken the global economy.
"It creates a more difficult environment for restructuring. If
you have a big noncore business that is still in wind-down mode,
tighter liquidity makes it very tough to exit certain noncore
assets," said Joe Dickerson, a banking analyst at Jefferies.
(END) Dow Jones Newswires
January 22, 2016 02:47 ET (07:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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