Markets are rubbing their hands at the prospect of a "parting gift" from Mario Draghi, outgoing European Central Bank (ECB) president, says Tommy Stubbington in the Financial Times. Yet while the Euro Stoxx index has rallied 15% this year on the prospect of interest-rate cuts, eurozone banks have been "notably absent from the festivities".
Negative interest rates mean banks are "charged to hold their excess reserves at the central bank", says Tom Rees in The Daily Telegraph. Eurozone lenders "have paid out €21bn to the ECB since negative interest rates were introduced in 2014". Markets expect rates to go as low as -0.6%, suggesting an epic squeeze on banks' profitability. Goldman Sachs calculates that a 100-basis point cut could see a quarter of Europe's biggest banks become "loss-making or break-even".
The banks' woes run deeper than negative rates, saysChen Gong in The Brussels Times. Big layoffs this year at Deutsche Bank and Italy's UniCredit suggest that the "European banking industry has not fully recovered from the financial crisis". Where US authorities acted quickly to inject capital into banks, efforts to deleverage Europe's financial institutions were more haphazard.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely 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
While US bank shares have long since rallied from their financial crisis lows, eurozone bank stocks are back near their nadir, notes Charles Gave on Gavekal Research. Even the Federal Reserve's recent rate cuts have not sparked a rally, which suggests that "central banks are out of ammunition".
The risk is that if eurozone banks get into more trouble, then they will reduce lending, creating "a vicious cycle" of sliding growth, says Chen."In the context of global trade war and economic slowdown, this vulnerability may eventually evolve into a trigger for a new global economic crisis."
-
What happens if you can’t pay your tax bill, and what is "Time to Pay"?Millions are due to file their tax return this Friday as the self-assessment deadline closes. Though the nightmare is not over until you pay the taxman what you owe - or face a penalty. But what happens if you can't afford to pay HMRC your tax bill, and what is "Time to Pay"?
-
What does Rachel Reeves’s plan for growth mean for UK investors?Rachel Reeves says she is going “further and faster” to kickstart the UK economy, but investors are unlikely to be persuaded
