European Banks Prepare For "Economic Nuclear Winter"

Tyler Durden's picture

While some European bank stocks have scrambled back some of their plunge losses post-Brexit, the current uncertainty over when the U.K. will start the process of quitting the EU has banks on tenterhooks, with a source telling CNBC that banks are "preparing for an economic nuclear winter situation." With negative rates (and a plunging yield curve) banks' earnings are under threat but the concerns over the potential for contagious European break-up and collapse of the pound after Article 50 is signed is existential.

 

Another dead cat bounce in EU banks?

Speaking on the condition of anonymity due to the sensitive nature of the topic, a source from a major investment bank told CNBC that financial services firms have put together a strategy in place that takes into account the worst-case scenario that could happen by the end of this year.

"This could mean triggering Article 50, referendum in other European nations leading to a break-up of the euro or sterling hitting below $1.20 or lower. The banks are ready for anything now," the source said.

 

The source further explained that the challenge in 2016 is nothing compared to when the Lehman Brothers collapsed in 2008 and the banking sector is this time a lot more resilient. "Markets hate uncertainty and the events this year have unfortunately created a lot of mystery around what is going to happen next."

 

Meanwhile, a common theme across second-quarter results has been a warning of uncertain times ahead. From big investment banks to mining firms like BHP Billiton and Glencore to the auto sector, companies have cited uncertainty and volatility in markets as a reason for weak results and have warned that the second half will be challenging.

But we note that EU banks relative performance to broad EU stocks remains glued to the yield curve... (not level of rates)

 

 

As we noted previously, at negative rates, banks’ business model becomes unsustainable. If rates are negative for long enough, the business faces a life threat.

Other factors (Fintech, over-regulation, etc..) are second order drivers, though all headwinds at present times.

In truth, the business models of pension plans, insurance companies, money managers are all affected by what happens to the yield curve, in different ways. But nobody like a Bank is so inescapably impacted by its shape.

At times, good Banks can skilfully outperform their core commodity – the yield curve - and smoothen its widest gyrations across the cycle. Like a good oil company can diversify and smoothen the violent swings of oil prices.

But can they totally disconnect from it? Unlikely.

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nope-1004's picture

Like bank earnings are a major concern for me... lmao.

The crooks have stolen tax payer money, engaged in fraud, and now with the potential Brexit "earnings are under threat"?

Can't make this shit up.

Bokkenrijder's picture

@ nope-1004

You're spot on, but unfortunately the public continues to get brainwashed with this nonsense through the mainstream media.

More Ammo's picture
but... rumors... May To Trigger Article 50 Brexit Process Without Parliamentary Vote

Aug 29 2016

http://www.breitbart.com/london/2016/08/29/may-trigger-article-50-withou...

Sandmann's picture

The Executive does not need a vote in the House of Commons to deal with treaties. It is Royal Prerogative exercised by the Government. What would be interesting is which Acts contain "Henry VIII Clauses" since this is how much of EU legislation has passed into UK law. With Henry VIII Clauses amendment to primary legislation does not need Parliament to vote at all.

Section 2(2) of the European Communities Act contains a legal provision that allows a government to change or repeal a law without going through the usual parliamentary route. The mechanism is meant to allow a minister to make changes without touching the underlying law.

It is known as a “Henry VIII clause” after the Statute of Proclamations of 1539 which gave King Henry VIII power to legislate by proclamation. Such powers have drawn the criticism of senior UK judges, who decry their use to bypass the national Parliament.

Lawyers for Britain suggests extending this “existing well-oiled regulation-making power” so it could be used to handle the legislative fallout from a “Brexit.”

“Thus, these sweeping ‘Henry VIII’ powers, which have been used so effectively to implement the incoming tide of EU law, would be used rapidly to unravel EU law,” the group said.

Sandmann's picture

2)Subject to Schedule 2 to this Act, at any time after its passing Her Majesty may by Order in Council, and any designated Minister or department may [F2by order, rules, regulations or scheme] , make provision—

(a)for the purpose of implementing any [F3EU obligation] of the United Kingdom, or enabling any such obligation to be implemented, or of enabling any rights enjoyed or to be enjoyed by the United Kingdom under or by virtue of the Treaties to be exercised; or

(b)for the purpose of dealing with matters arising out of or related to any such obligation or rights or the coming into force, or the operation from time to time, of subsection (1) above;

and in the exercise of any statutory power or duty, including any power to give directions or to legislate by means of orders, rules, regulations or other subordinate instrument, the person entrusted with the power or duty may have regard to the [F4objects of the EU] and to any such obligation or rights as aforesaid.

In this subsection “designated Minister or department” means such Minister of the Crown or government department as may from time to time be designated by Order in Council in relation to any matter or for any purpose, but subject to such restrictions or conditions (if any) as may be specified by the Order in Council.

(3)

fjcruiserdxb's picture

Very good points Sandmann. I do have one potential issue with the triggering of Art 50 without Parliament support. I am assuming that some of the current EU laws the UK adheres too may have given better rights or protection to UK citizen (possibly in the area of working conditions for eg). Withdrawing from them may make the UK citizen worse off in those instances. Parliament would have to raise the alarm as the UK is after all a parliamentary democracy. I am just wondering if it is not in the best  interest of the UK government to have the support of Parliament although we all know the majority is for Remain and would vote so triggering another constitutional issue this time with the citizens having voted out !. Interesting times.

Ghost of PartysOver's picture

Not so sure about that.  When the Brits see what may happen to the EU Finances / Banks they will want to stay out of it.  I said "may" because I don't think anyone really knows what will happen.   EU may take a page out of the Jap CB playbook and carry on the charade for 3 more decades.

jpcdo028's picture

There is no need as the EU will collapse. 

auricle's picture

Nuclear Winter = Extinction level event for the banks. There is no need to prepare...

Peacefulwarrior's picture

Don't Worry the Millions of Refugees flooding Germany etc. will ignite GDP numbers any day now...??

adanata's picture

 

Yep.... kudos to the Boyz; blame it on "Brexit".

NoDebt's picture

The EU was a dumb fucking idea to begin with.  Break up can't happen fast enough.  If a few banks happen to go bust in this process that's just icing on the cake.

 

MaxMax's picture

RE 'dumb fucking idea to begin with'

Well, yes and no.  I managed the FX exposure for a subsidiary of GM back before the Euro was created.  At the time, I thought it was absurd because without political union, I couldn't see how a common currency would exist for long.  I am amazed the Euro has lasted this long.

But, what the Euro really did was allowed a bunch of risky European counties to borrow at low interest rates because the market judged Italian, Greece, Portugal, Spain, etc debt to have Gernmany's credit worthiness.  That allowed Europe to have a debt fueled boom that lasted 20 years.  Of course, all those countries really weren't that credit worthy and now there is a mountain of bad debt that nobody wants to recognize.

Couple all that bad debt with a population that isn't reproducing fast enough and the politicians know the promised pensions, healthcare and whatnot can't be paid.  That's why Merkel wants to let in the immagrants - she figures that the imimgrants will work, pay taxes and allow the German citizens to retire the way they were promised.

GreatUncle's picture

The big catch is the immigrants are going to want the same deal.

knotjammin2's picture

Blaming all the bank insolvencies on Brexit is pure bullshit!!  When can we start hanging bankers?  Go long on short pieces of rope folks!!  I want the broadcast rights when the hanging starts.  Maybe we will get lucky and see a few more "Nail Gun Suicides" too.

 

Osmium's picture

"Speaking on the condition of anonymity..."

In order to avoid a nailgun accident.

Crazed Smoker's picture

SPOILER ALERT:  hate to ruin the suspense, but it will end in a shower of confetti money.

Bill of Rights's picture

So the seeds for the " QE WIEMAR " are being sowed

RadioFlyer's picture
RadioFlyer (not verified) Aug 29, 2016 1:37 PM

What comes before Nuclear Winter?

Yeah, WWIII. Damn it.

knukles's picture

You're Welcome.

Like another nobody saw this coming.
Right?

Like hitting the bottom major withdrawal what with losing the UK, The City and their banks.
The Head NWO'ers shoulda thought about this before pissing off the Brits

rejected's picture

Awwwwww,,,, pity the poor banksters....

samsara's picture

I think that it will be a Kondratieff Winter.  Hit the link and look at the picture.

4th Turning ya'll

GunnerySgtHartman's picture

The media wants us to believe that the UK can't survive without the EU, putting the pound at risk.  The truth be told, the euro is at a much-higher long-term risk than the pound will ever be; there's no way that Germany can carry the entire EU economy on its back, especially with the situations in Greece, Italy, and Portugal and the ongoing 'refugee' situation.

Glad to see the Brits getting out while they can.  A pint raised in your honor!

GreatUncle's picture

That's the point though the EU / EZ economy does not add up without all the in your face money printing.

Heavenlysunshine's picture

Whatever the London banks did, the continintal European ones can do even better.

Besides, now the Rothschild branches in Frankfurt, Paris and Rome will just be working more.

chosen's picture

Deutsche Bank will take everybody down.  I hope FDIC insurance holds up.  It managed okay during Lehman, although I noticed the first thing any government agency did after Lehman went down was they increased FDIC insurance from $100,000 to $250,000.

WillyGroper's picture

guess you didn't get the memo.

FDIC/BOE MOA.

rosiescenario's picture

DB shareholders presently appear to be a contented lot....they must all be assuming that DB is the poster child for a TBTF bank that will get a government bailout for its shareholders. Personally I cannot imagine owning DB...it is all risk with a potentially miniscule reward.

Kirk2NCC1701's picture

Translation hint: Just drop the word "Economic" from the title, and you may get the sense of what's coming.

PoasterToaster's picture
PoasterToaster (not verified) Aug 29, 2016 2:32 PM

A world without banks is a world without war.  Nuke that financial shit away.

GreatUncle's picture

CBA to comment ... another story exactly the same be here tomorrow.

Know all I need to know for now as my government attempted to sell me out and will do so again.

Every day now that concept will fester in many a British citizens mind ... will it be me or some other to crack first and kill the next lawmaker because whoever it is I am going to FUCKING CHEER.

oncemore's picture

They will close the shop. They have to contingency in terms of capital (political or financial).

UK is on its own and left EU, EU banks are in a disastrous shape, so what preparation?

Sandmann's picture

 

"This could mean triggering Article 50, referendum in other European nations leading to a break-up of the euro or sterling hitting below $1.20 or lower. The banks are ready for anything now," the source said.

 

The source further explained that the challenge in 2016 is nothing compared to when the Lehman Brothers collapsed in 2008 and the banking sector is this time a lot more resilient.

 

 

As they said in 2008....."this time a lot more resilient".........ROFL

VWAndy's picture

 The CB should come out ok seein as they will be the ones dropping the nukes on everyone but themselves.

VWAndy's picture

 First they nuke the savers. Then the pensions. Then the working stiffs again. Then the states. Then all the countries. Then the entier surface of the planet. Are Mars and Jupiter out of range?

Vin's picture

In the long-run, wouldn't you think that the Pound would do better than the fake Euro? It's just a matter of time before Europe falls apart.

Seems odd.

Father ¢hristmas's picture

Take a hit of Orange Sunshine and start flashing visions of the future.

You can smell the acrid smoke of lightning fast printing presses in one wing of the ECB.  

While in another Super Mario and his pals are gathered around a Commodore 64 with bras on their heads and candles lit.  Summoning the courage to act and purchase a motherfucking shitload of worthless corporate bonds.

Entire families pushing wheelbarrows full of bullshit goofy-looking ass currencies down cobbled streets to the market to buy an afternoon's worth of groceries.

Juncker locked in a Brussels safe room drunk as a goddamn skunk off Wild Irish Rose and Colt .45.  He can taste the steel of his Ruger barrel on his tongue as the plebes huff, and they puff, and get ready to blow his doors in.

Spungo's picture

Is that a picture of bigfoot?