Not another financial crisis. European taxpayers still haven’t recovered from the one which rocked the global financial system sixteen years ago – and now, another potential crisis appears to be looming for the Continent’s banking sector. Our just-published October Global Market Perspective elaborates:
The German government’s partial sale of Commerzbank last month demonstrates the potential for anger to boil over. According to the Financial Times, the “€700 million disposal of shares … ignited a firestorm of recriminations and raised questions about who knew what and when.” (FT, 9/17/24) For context, we need to wind the clock back to January 2009, when the German government first acquired a 25% stake in Commerzbank as part of the bailouts during the global financial crisis. On September 10, Germany’s Federal Finance Agency sold a block of shares that ended up in the hands of UniCredit, enabling the Italian lender to acquire a 9% stake without previously disclosing any interest. The outcome? According to Bloomberg, Germany “has forfeited well over €100 million in potential gains on the stake sale [and] may find itself strategically outmaneuvered, with its grip over Commerzbank’s future potentially weakened.” (9/17/24) That grip weakened even further on Tuesday, when UniCredit “disclosed it had entered into derivative contracts that would allow it to raise its Commerzbank stake to around 21%.” (Bloomberg, 9/23/24) Last week, the German government launched an internal probe into the sale. On Wednesday, a German parliamentary committee launched a formal investigation, ensnaring top investment banks like Goldman Sachs, which organized the original auction, and JP Morgan, which had previously advised UniCredit. The scale of the problem, however, is clearly much larger than any one German lender:
US Counts Its Bank-Bailout Billions While Europe Still Nurses Losses
Sixteen years after the financial crisis, European taxpayers are still counting the cost of bailing out their banks. Unlike in the US, where public funds were repaid years ago, European governments continue to nurse losses on stakes in some of their largest banks.
—Bloomberg, 9/20/24
In other words, the hapless European taxpayers who subsidized the bailouts 15 years ago continue to lose money due to sheer bureaucratic mismanagement. At the same time, a dangerous complacency continues to descend on the banking sector. Prices for default insurance on a basket of European banks have barely budged after falling to a two-year low in May.
We have said it before: The financial community believes that Europe’s banks are safe. We view them as riskier than ever before.
Major risk is not just confined to Europe’s banking sector. Our analysis of the Euro Stoxx 600 – as well as Germany’s economy and main stock index – is well worth your attention. Follow the link below to access our just-published October Global Market Perspective now.
It’s best to prepare for difficult financial times before they develop. Learn how you can get instant and free access to our special report “Preparing for Difficult Times” by following this link.