Banking Crisis

Who Gains, Who Loses As Greece Stumbles Towards Ruin? Asks Berenberg

Tom Burroughes Group Editor 8 July 2015

Who Gains, Who Loses As Greece Stumbles Towards Ruin? Asks Berenberg

Some banks, in the medium term, appear in better shape than others to weather Greek-associated storms, argues Berenberg in a note.

Banks able to focus on risk-adjusted returns and which are therefore best able to deliver sustainable cash dividends are the long-term winners out of the eurozone turmoil, according to Germany-headquartered private bank and investment house Berenberg.

Those banks, the firm said in a report, are Handelsbanken, HSBC, ING, Nordea, Swedbank and UBS.

In its latest note on the eurozone’s debt crisis and the problems of Greece, Berenberg said that events unfolding in Greece, such as its voters’ rejection of a eurozone bailout package and conditions, “reinforce the structural bear case we have long articulated on European banks: that the end of the debt supercycle, with interest rates lower for longer and ever tougher regulation, will cap bank returns on equity at 8-9 per cent”.

“This [outcome] will disappoint both the market and the boards of banks. Ultimately, bank business models are based on arbitraging the price of money across time and across markets. The more markets Balkanise (and quantitative easing persists), the fewer profitable opportunities there are; that is the real takeaway from events in Greece,” Berenberg continued.

“We believe the key to understanding the impact of the Greek referendum for European banks lies in the bigger picture: 1) debt burden remains key: Greece, like Puerto Rico in the US (and China?), shows that the fallout from the end of a 60 to 70-year debt supercycle is far from over. Greece is but a symptom of a much larger problem; it is not an isolated case,” it said.

The firm said that European institutions are “not permanent” and noted how it took a non-European in the person of William Dudley, president of the New York Fed, to point this out recently.

The notion, once floated in policy circles, of a European banking union is “dead”, Berenberg said.

“During negotiations with Greece, euro-area politicians showed a preference for their own national interests. Therefore, how can true banking union ever exist? Such a union requires a single rule book/supervisor, a single resolution/bail-in mechanism and a single deposit scheme,” it said.

A damning feature of recent events, Berenberg continued, is that Greece’s Alpha Bank had passed a set of stress tests with “flying colours” eight months ago but could be destroyed if the European Central Bank cuts off liquidity.

 

Register for WealthBriefing today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes