Dear,
In every process of change every day is different than the day before, but when change is completed historians mark in the calendar those special days which explain the change.
For instance, if we look at the history of modern economy, we will find special days like the Black Tuesday, when the markets decided to believe that the Roaring Twenties were over, triggering the most devastating stock market crash in the history of the United States and starting the Great Depression.
http://en.wikipedia.org/wiki/Black_tuesday
September 15, 2008 is also an interesting day, when the US authorities decided to let Lehman Brothers fall.
On the previous weekend several alternatives were put in the table; merging Lehman with Bank of America as they did with Merrill Lynch, bailing out the bank as they did with Bear Stearns or AIG, or mixed solutions like bailing out the bank and selling the good assets to Barclays.
But the decision was letting fall the fourth-largest investment bank in the US; changing the rules of the game for the first time in 80 years.
November 2014 will be another milestone; by then, the new Single Supervisory Mechanism of the European Central Bank will issue the results of the stress tests that will make public what is the “real” situation of the European Banking System.
Since the starting of the financial crisis in 2007/2008 we have seen several audits of the financial system, telling us that the financial system was solvent, and acknowledging some months later that more capital was needed.
http://en.wikipedia.org/wiki/List_of_bank_stress_tests
This time is going to be different as it has to be different, rumors say that 9 European banks are going to fail and 51 billion Euros are going to be needed for recapitalizing the system. Other rumours are more pessimistic and predict that 100 billion euros will be required.
http://www.reuters.com/article/2014/09/03/banks-goldman-survey-idUKL1N0R32IL20140903
Whatever the final figure is, the important consequence will be that the banking European system is undercapitalized.
But, only the European banks have solvency difficulties?
Of, course not.
In a global financial system everybody is connected and affected by the others; and what happens to one, it happens to the system.
Once again, look at the global debt clock.
http://www.economist.com/content/global_debt_clock
According to it, every Belgian carries a public debt of $45,405.40, every Briton $40,456.90, every French $37,989.90, every Spaniard $23,093.85, every Greek $27,189.68, etc.
And don't forget that on top of this mountain of public debt, the financial system is full of private debt, carried by corporations and individuals.
Are capital markets naive enough for believing that this debt can be paid?
Assuming that European banks, main holders of European public debt, need 51 billion Euros of Capital, with very low public debt interest rates; how much capital are they going to need, when capital markets decide to become anxious and raise the spreads?
I asked the same question to a reader of my blog, with management responsibilities in a European bank, who contacted me some months ago. He acknowledged that more capital is going to be needed and capital optimization is going to be a critical activity.
Unfortunately, he was not able of describing any concrete action for optimizing capital management on his bank.
Intriguing, isn't it?
By the way, in my opinion issuing shares or subordinated debt means increasing capitalization levels, not optimizing capital management.
Looking forward to read your opinions.
K. Regards,
Ferran.
In every process of change every day is different than the day before, but when change is completed historians mark in the calendar those special days which explain the change.
For instance, if we look at the history of modern economy, we will find special days like the Black Tuesday, when the markets decided to believe that the Roaring Twenties were over, triggering the most devastating stock market crash in the history of the United States and starting the Great Depression.
http://en.wikipedia.org/wiki/Black_tuesday
September 15, 2008 is also an interesting day, when the US authorities decided to let Lehman Brothers fall.
On the previous weekend several alternatives were put in the table; merging Lehman with Bank of America as they did with Merrill Lynch, bailing out the bank as they did with Bear Stearns or AIG, or mixed solutions like bailing out the bank and selling the good assets to Barclays.
But the decision was letting fall the fourth-largest investment bank in the US; changing the rules of the game for the first time in 80 years.
November 2014 will be another milestone; by then, the new Single Supervisory Mechanism of the European Central Bank will issue the results of the stress tests that will make public what is the “real” situation of the European Banking System.
Since the starting of the financial crisis in 2007/2008 we have seen several audits of the financial system, telling us that the financial system was solvent, and acknowledging some months later that more capital was needed.
http://en.wikipedia.org/wiki/List_of_bank_stress_tests
This time is going to be different as it has to be different, rumors say that 9 European banks are going to fail and 51 billion Euros are going to be needed for recapitalizing the system. Other rumours are more pessimistic and predict that 100 billion euros will be required.
http://www.reuters.com/article/2014/09/03/banks-goldman-survey-idUKL1N0R32IL20140903
Whatever the final figure is, the important consequence will be that the banking European system is undercapitalized.
But, only the European banks have solvency difficulties?
Of, course not.
In a global financial system everybody is connected and affected by the others; and what happens to one, it happens to the system.
Once again, look at the global debt clock.
http://www.economist.com/content/global_debt_clock
According to it, every Belgian carries a public debt of $45,405.40, every Briton $40,456.90, every French $37,989.90, every Spaniard $23,093.85, every Greek $27,189.68, etc.
And don't forget that on top of this mountain of public debt, the financial system is full of private debt, carried by corporations and individuals.
Are capital markets naive enough for believing that this debt can be paid?
Assuming that European banks, main holders of European public debt, need 51 billion Euros of Capital, with very low public debt interest rates; how much capital are they going to need, when capital markets decide to become anxious and raise the spreads?
I asked the same question to a reader of my blog, with management responsibilities in a European bank, who contacted me some months ago. He acknowledged that more capital is going to be needed and capital optimization is going to be a critical activity.
Unfortunately, he was not able of describing any concrete action for optimizing capital management on his bank.
Intriguing, isn't it?
By the way, in my opinion issuing shares or subordinated debt means increasing capitalization levels, not optimizing capital management.
Looking forward to read your opinions.
K. Regards,
Ferran.
No comments:
Post a Comment