Some Of The 'Most Systemically Important Banks' In The World Are Tumbling

Since the Federal Reserve hiked rates, "big" US banks have dramatically underperformed "small" US banks, continuing a trend that has been going on since February...


But it's broader than that this "big" bank blow-up is global.

The stock prices of 16 of the most 'Systemically Important Financial Institutions' (SIFIs) in the world are now in bear market territory (down by 20% or more from their recent highs in dollar terms); and as the FT reports, this has caused Ian Hartnett, chief investment strategist at London-based Absolute Strategy Research, to issue  his first "Black Swan" alert since 2009.

Of the 39 SIFIs, these are the 16 in bear market territory: Deutsche Bank, Nordea, ICBC, UniCredit, Crédit Agricole, ING, Santander, Société Générale, BNP Paribas, UBS, Agricultural Bank of China, AXA, Mitsubishi UFJ Financial Group, Bank of China, Credit Suisse and Prudential Financial.

At some point, says Hartnett, central bankers will have to respond to bearish signals from almost half the global SIFIs, rather than continuing to tighten monetary policy:

“The clue is in the name,” he said.

“If these banks are supposed to be systemically important then policymakers ought to be watching them to see what is happening.”

"The synchronised dips were a sign of global financial stress."

At the same time the credit risk of some of the largest banks in the world has risen significantly...

And the TBTF US Banks have started to tumble...

But SIFIs have globally underperformed the markets...

As The FT goes on to note, what many of the harder-hit Sifi banks have in common, said Mr Harnett, was a heavy dependence on US-dollar funding, putting them at risk of a squeeze if US rates continue to rise and the dollar continues to strengthen. Banks in Canada, Australia and Sweden, in particular, came through the last crisis in relatively good shape, thanks largely to their exposures to China and a strong commodities market. But in the years since then, the banks had overextended, he said, trying to support rapid asset growth with wholesale funding, rather than traditional deposits.

Finally, Hartnett noted bullish remarks from Jamie Dimon on CNBC last week, when the JPMorgan chief celebrated strong consumer and business sentiment and said he could find no “real potholes” in the outlook.

“The good news does not last for ever,” he said. “Those kind of comments are usually just before things start heading down.”

Sooner or later, Powell is gonna get the tap on the shoulder from his real bosses and judging by the collapse of many of the SIFIs, it's soon.


shizzledizzle Fri, 06/15/2018 - 12:48 Permalink

"big" US banks have dramatically underperformed "small" US banks" <- somewhat odd as I remember reading (possibly here on ZH) not long ago how small banks were the most exposed to subprime now and delinquencies are ticking up...

Harry Lightning Winston Churchill Fri, 06/15/2018 - 13:07 Permalink

You're absolutely spot on with that. If and when the fur really starts flying in the global economy, the Central Banks won't even know how to calculate the contingent off balance sheet liabilities, much less know how much will be needed for a bailout. By the time they figure it all out it will be far too late and too costly to do anything about it. 


In reply to by Winston Churchill

Harry Lightning peopledontwanttruth Fri, 06/15/2018 - 13:43 Permalink

Just because it never has been done before does not mean a proper solution cannot be calculated. The problem is not that we have no solution, because we do have one. Print as much as can be printed without consumer prices skyrocketing.

That's when the real problem would become apparent. How do you pay off debts when you cannot print any more money ? Especially when those debts represent all of the value of all public and private companies in the economy. That will be the real problem some day, but there again, its one that's been tackled on a microeconomic basis by a number of countries in the recent past. 

Compounding the issue this time will be the size and breadth of the problem. In the past its been just a handful of countries at one time, the worst of those happening in August of 1982 when four countries threatened default on all their debt obligations if the Fed did not lower the short term interests rates that dictated the amount of interest that those four countries were paying on their dollar based debt.   

My guess is that the problem is going to be so massive that the only practical solution will be to tear up all the debts, wipe the public and private slates clean, and start over with real laws that limit the amount of debt every country can be allowed to engage. Start treating countries like banks treat individual borrowers. And make countries and companies pledge adequate capital to ensure the payment of contingent liabilities. Truly a New World Order along the likes of the Bretton Woods Conference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

In reply to by peopledontwanttruth

peopledontwanttruth Harry Lightning Fri, 06/15/2018 - 14:03 Permalink

Harry I think they’ve been scratching their heads for a long time with no clue how to maintain their wealth and power.  

While I see your train of thought how does this work for everyone who worked hard and lived within their means, saved and was frugal?

The lazy person is as good as them? This would create an even worse mentality towards work, earning a living and not taking advantage of everything and everyone.  

Theres no simple or complex solution.  It’s been allowed to fester for to long 

In reply to by Harry Lightning

shortonoil peopledontwanttruth Fri, 06/15/2018 - 15:14 Permalink

The banks do have a contingency plan; it's called rob the emerging markets, and that is exactly what they are doing to the tune of $1+ trillion a year. They may be sleazy, unethical slim balls, but they aren't stupid. If a few thousand children starve to death in Venezuela tomorrow that is collateral damage. The important thing is the balance sheet.

In reply to by peopledontwanttruth

peopledontwanttruth Winston Churchill Fri, 06/15/2018 - 13:21 Permalink

WC, a figure I read years ago when Obama was the puppetician, was just the derivative market alone was the GDP of every nation on earth for 46 years.  

Obviously this didn’t include government, state, corporate, personnel debt and unfunded liabilities of every nation and person.  

Debt as far as the eye can see and the mind can imagine 

In reply to by Winston Churchill

MusicIsYou Fri, 06/15/2018 - 12:55 Permalink

Oh, what you really mean is the phony banks are sinking. "Real" banking occurs at the basic level of civilization. Real banking occurs on the ground where the action is, and anything above real banking is imagined banking. Somebody can imagine anything they want to even if it does not function, but it does not replace what is real.

Vin Fri, 06/15/2018 - 12:59 Permalink

Tyler,   Don't understand why we're pretending that this is all a surprise. 

We've had fake money and fake banking for 100 years.  They created one depression in order to beat down the people and now we're going to get another. 

The real question, which isn't addressed here, is what are the ramifications when the world is finished accepting fake giu money in payment for real goods and services.

Harry Lightning Vin Fri, 06/15/2018 - 13:18 Permalink

I wrote about this the other day. Money is not fake, it represents the value of the net public and private assets of the country that in which its issued. Money is simply the medium by which those assets are bought and sold. There always will be money, and any unit of money is representative of its issuing country's value as long as the money is universally accepted for transactions.

The real question is what happens when the buying power of the money erodes to the point where you need a wheel barrel full of it to but a container of milk or a loaf of bread. Historically (Weimar Republic 1922, Russia 1992, Argentina since 1960s) that is when economies collapse, and some new formulae are introduced to re-establish faith in the buying power of a new form of money.

Remember, money has no intrinsic value, it only represents some type of value. The only fake money is that which does not represent anything, like the paper money in Monopoly. Ostensibly it represents the abstract value of entertainment derived from playing the game, but in reality it is worthless because it does not represent anything. 

Crypto-currency is on the fence as to whether it represents something and therefore qualifies as money. ZIt represents the value that the owner put into it, that's for sure. But since it is not universally accepted for transaction, its status as a type of money is severely called into question. Depending on whether it gains such acceptance in the future will determine whether it evolves into a type of money.

In reply to by Vin

Harry Lightning VWAndy Fri, 06/15/2018 - 13:33 Permalink

You already have a  barter based system. You trade some portion of your work effort for food. But since you don't work for the food producer or distributor, you use money to represent the value of your work.

What really needs to be re-formulated is the unlimited authority of an non-elected agency of government to dilute the value represented by a unit of currency. The Fed should not be allowed to unilaterally decide what the value of the entire American economy is and then to use that calculation to decide how much money should be issued to represent that value. As it stands now, the Fed issues money in large part to satisfy political purposes of the government in office. 

In reply to by VWAndy

Offthebeach Harry Lightning Fri, 06/15/2018 - 13:41 Permalink

Say no free person wants your fiat.  

However it can be made valuible , fairly so, even if in fact, and in the market place it is unwanted.

Taxes.  Taxes, baby, taxes.  The power structure/the mafia/government orders you to pay in the script, so it has value in the market place now.  Even if, say, 95% of transactions are done in gold, or beads, or silver or yen, if Uncle Same wants dollars, you got to go buy them, either by labor and sweat, or pay to get them


And Uncle Sam can make his fiat more valuable by raising taxes.  ( This is why hooked up billionaires love taxes.  It removes dollars and makes their dollars more valuable )

Things are valuible in free markets, and the are valuible because the big scary guy says he wants them and fk you, fk your house, fk your family go and get it ..or else.

In reply to by Harry Lightning

VWAndy Fri, 06/15/2018 - 13:01 Permalink

 Rather than bailing out the banks the right and proper thing to do is jail everyone that works at the bank. Even the janitors. Maybe start with the shareholders?

Harry Lightning VWAndy Fri, 06/15/2018 - 13:29 Permalink

I think its more than just WF, There was a serious charge that could have been brought against the Chairpeople at Citi, Merrill, and Countrywide for sure. The first two were warned repeatedly by their own risk managers that they were putting their institutions at grave risk, but they paid no heed and did what they did in spite of the warnings. Countrywide just made ridiculously bad loans without concern for shareholders, which is a violation of securities law. The fact that none of those people went to prison for their violation of their fiduciary responsibilities opened the door for even worse risk taking since, which is why the next financial crisis promises to be much worse than the last one.

And not fer nuthin' but there are government officials who should be punished as well. Why has the Fed not forced banks to set aside legitimate amounts of capital to cover its sales of credit derivatives. When a credit derivative is sold its like an insurance company issuing a policy on someone's life. The company has to set aside capital to ensure that when the person dies, the money will be available to pay the policy claim. Insurance companies go to great lengths under the watchful eyes of regulators to actuarially calculate the appropriate amount of capital that needs to be set aside for every policy,

Nothing like that is done for the sale of credit derivatives, which means that should a few major defaults take place, the issuers of the credit derivatives that guaranteed against such default likely will not have the capital to pay off the claims of the holders of the pertinent derivatives. That's a huge systemic risk that the Fed should be held liable for should it come to pass, and the leadership of the Fed should be held personally responsible for not correcting the problem once 

In reply to by VWAndy