Banks: it feels like 2008 again

Banks are back in the headlines for all the wrong reasons. Following reports of a credit squeeze in the European interbank market, this week US banking giant Bank of America (BoA) saw its shares slump again. They've lost a third of their value since the beginning of the month. Investors fear the bank will have to raise at least $50bn in new capital because it is exposed to the deteriorating housing market. Swiss bank UBS will axe 5% of its staff, or 3,500 people. European banks have slashed a total of 60,000 jobs this year, 50,000 of them in Britain.

What the commentators said

The jobs "bloodbath", as Jonathan Evans of Sammons Associates described it, is due largely to the investment banking sector. It "briefly enjoyed a false bubble" after the 2008 crisis, said George Hay on Breakingviews. "Reduced competition meant those left standing could fill the departed's boots" in areas such as fixed income and commodities trading. But markets weakened last year and kept sliding this year. As uncertainty has risen, investors have cut back on trading and demand for mergers and acquisitions work and flotations has fallen. New regulations are raising costs.

As for BoA, nobody is convinced it has enough money to offset the fact that foreclosures and early arrears among borrowers are high and rising while house prices are still sliding, said Tom Bawden in The Guardian. The cost of insuring its debt against default has hit record levels. The "stroke-inducing levels of anxiety affecting the banks", said Phillip Inman, also in The Guardian, "feel like a re-run of 2008".

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up