European bank loan books look WORSE than US peers

Europe is better equipped to deal with a liquidity crisis than the US, but if this evolves in to a credit crisis, which is a fair assumption by now, European loan books look MUCH worse than in the US.

Welcome to yet another report on the state of the banking system – this time focused on the European continent. On Wednesday we covered US banks in light of the recent and still ongoing stress in the sector, but while the epicenter of what developed into a crisis is found in the US, European banks have suffered in its wake.

Read along as we give a sitrep on the state of the peers east of the Atlantic. 

Red across the board

Of all the banks in the below table, not one was up on Friday. On average, their stock price was down 5%(!) by the time of writing with Deutsche Bank leading the landslide. Ouch! Contrary to their American peers, all but one (UBS) is trading at a price below its book value.

Turning to the tangible common equity (TCE), the European banks have lessor of a margin (5%) than the US banks put under the scrutinous loop on Wednesday (6.25%). This TCE is a measure of a bank’s physical capital and hence a measure for its ability to deal with potential losses – the adequacy of capital. 

The LDR (Loan-to deposit) liquidity measure is used to assess banks’ total loans to its total deposits. Intrinsically, a bank would want to have a well upholstered LDR in times of abnormal outflows of deposits to best absorb the stress. At a glance, none of the below show worryingly stretched ratios – but in particular Nordic banks (Jyske Bank in particular) run relatively high loan to deposit ratios, which could be something to worry about in times of deposit stress. 

Chart 1: Metrics overview

Find out which European banks to follow and why the European banking loan books are much more vulnerable to a credit crisis than US peers, if you follow this link → https://stenoresearch.com/watch-series/money-watch-european-bank-loan-books-look-worse-than-us-peers/ …

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