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European markets continue to move lower today on fears of another-recession. The huge sell-off of financial stocks, sparked by concerns over their exposure to Eurozone debt and funding fears, is weighing on European markets.But a slowdown in earnings is more of a risk for European banks, than a lack of liquidity, says Deutsche Bank analyst Matt Spick:
“…When we take a step back from the headlines, we find that 24 of the European banks reporting so far have delivered 2012E adjusted EPS downgrades, and just 7 upgrades. In addition, a number of banks (for example UBS, RBS and SocGen) abandoned or guided cautiously on medium-term profit targets.”
A slowdown in earnings is expected in Q3 as slowing GDP growth will hurt lending. Revenues related to capital markets i.e. markets in which individuals and institutions trade financial stocks and bonds to raise funds, are also expected to disappoint.
Spick says a 2008-type liquidity crisis is unlikely, because central banks are prepped to give out emergency loans to cash-strapped banks. He is however concerned about longer-term bank debt issues. Banks, according to Spick, have fallen behind on their debt issuance in July and August, and may have to go through another round of cost cutting, as they try to deleverage.
While banks like Société Générale and Commerzbank AG are trading down today, they’re nowhere near yesterday’s scary numbers.
- Societe Generale — -1.02%
- Credit Agricole — -0.45%
- BNP Paribas — -3.49%
- UniCredit SpA — -4.29%
- Intesa Sanpaolo — -4.77%
- UBI Banca — -2.59%
- Commerzbank AG — -0.21%
- Deutsche Bank AG — -3.79%