Bank stocks in Europe plumbed fresh mutli-decade lows despite the release of a hurriedly improvised one-paragraph announcement by the ECB pledging to do just about whatever it could take to keep the banking system in tact. The ECB will continue “to monitor markets closely”, the message read, and is “ready to adjust all of its measures, as appropriate, should this be needed to safeguard liquidity conditions in the banking system.” In other words, the ECB is willing to throw what remains of the kitchen sink at the problem.
The message may have been intended to reassure investors, calm market jitters, and stop the sell-off of sovereign bonds and bank shares but if anything, it had the opposite effect. The Stoxx 600 Banks index, which covers major European banks, fell 3.7% to close at 83, below even the multi-decade low of 87 in March 2009, at the bottom of the first Financial Crisis this century. Today’s close was the lowest since February 1988, during the sell-off that followed Black Monday in October 1987. The index has collapsed by 85% since its peak in May 2007, after having quadrupled over the preceding 12 years:
The almost vertical collapse of those shares over the past four weeks is but the latest episode in a 13-year story of decline. The Stoxx 600 bank index has slumped by 85% since its peak in May 2007,
But what is the ECB going to do to rescue bank shareholders? Not much. The ECB is primarily concerned with keeping the Eurozone duct-taped together. Unlike the Fed, whose 12 regional Federal Reserve Banks are owned by the banks in their districts, and to whom bank stocks are therefore hugely important, the ECB couldn’t care less about bank stocks, as long as the banks themselves don’t collapse. So it has thrown just about everything it has at the problem of keeping the Eurozone in tact, including conjuring up €4.7 trillion ($5.2 trillion) of fresh money, and pushing its policy rates and many bond yields into the negative, but with largely undesirable consequences for banks and their shares.
On top of it comes the impact of the coronavirus. The Stoxx 600 Banks Index has plunged 45% since February 17, going to heck in a (nearly) straight line, and is down by 58% since January 2018:
By all appearances, we are headed into yet another full-blown financial crisis, triggered not by the banks this time but by the response to the coronavirus, which is now reverberating throughout the system and hitting the already weak banks. So far, neither the Fed nor the ECB have managed to get a grip on this new crisis, which is moving far faster than the last one.
Bank bonds are selling off, particularly the “senior non-preferred bonds,” a new creature road-tested three years ago by France’s biggest bank. These bonds lured many investors with the promise of a slightly positive yield. It’s “bail-in-able” debt. In return for the tiniest of returns (say, a yield of 2%), you basically get to hold debt that can be turned into worthless equity or be cancelled the moment a bank begins to wobble. Not surprisingly, investors are trying to offload them as quickly as they can, reports the FT.
Today, the ECB, in a bid to reassure investors, said that it is directly intervening in sovereign debt markets with a €750 billion bond-buying binge for the rest of 2020, including Greek bonds for the first time, and Italian bonds, whose yields have spiked sharply in recent days. Italian bonds are held in huge numbers by banks all over the continent, particularly Italian and French ones. The more they fall, the weaker the banks’ capital buffers get. Despite the ECB’s intervention, the yield on the ten-year bond still rose by over 5% today to 2.43%, its highest level since last last June.
The ECB also walked back prior remarks by Austrian central-bank governor Robert Holzmann that suggested that the ECB would take little further action beyond cutting interest rates even further into negative territory, which has been decimating banks’ interest margins for years, and providing emergency liquidity lines for the same banks that are being slowly killed by the negative interest rates.
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No publicly listed lender, big or small, has been spared by the latest rout. Below, in descending order, is a list of the worst-hit large publicly traded banks in Europe. The first percentage is the amount by which the bank’s shares have fallen since February 17, when the Coronavirus began spreading like wildfire through northern Italy, causing everything to go to heck. In parentheses is the amount by which they have fallen since Jan 1, 2018. We’ll leave it up to your imagination what the percent-drop from the peak in May 2007 would look like:
Société Générale (France): -56% (-67%)
ING (Netherlands): -54% (-73%)
Credit Agricole (France): -53% (-57%)
Santander (Spain): -52% (-64%)
Barclays (UK): -53% (59%)
BNP Paribas (France): -52% (-58%)
Unicredit (Italy): -51% (-57%)
Deutsche Bank (Germany) -50% (-68%)
Credit Suisse (Switzerland): -49% (-62%)
RBS (UK, majority state-owned): -39% (-54%)
These ten banks are Europe’s financial flag carriers. Though some of them have been shrinking in size, complexity, and risk, including Deutsche Bank. Nonetheless, they are still recognized as global systemically important banks (G-SIBs) due to the size, scope and inter-connectedness of their assets. If any one of them collapses it will set off a shock wave throughout the global financial system.
Many of Europe’s second-tier banks, whose collapse would have significant repercussions at the regional level, at the very least, have also seen their shares plunge in the past four weeks. Spain’s BBVA is down 52% (and 64% since Jan 2018), Germany’s Commerzbank, in which the state still holds are big share from the last bailout, is down 54% (and -75%). Italy’s Intesa Sanpaolo is down 44% (and 50%).
While the recent share collapse of seventh and eighth-placed Unicredit and Deutsche Bank has been slightly less pronounced than many of the region’s other large banks, their overall decline since the global financial crisis has been far greater than any of their other peers. Deutsche Bank has lost more than 95% of its market value since 2007 and Unicredit more than 98%. By Nick Corbishley, for WOLF STREET.
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MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
Dollarama Inc.’s food aisles may have expanded far beyond sweet treats or piles of gum by the checkout counter in recent years, but its chief executive maintains his company is “not in the grocery business,” even if it’s keeping an eye on the sector.
“It’s just one small part of our store,” Neil Rossy told analysts on a Wednesday call, where he was questioned about the company’s food merchandise and rivals playing in the same space.
“We will keep an eye on all retailers — like all retailers keep an eye on us — to make sure that we’re competitive and we understand what’s out there.”
Over the last decade and as consumers have more recently sought deals, Dollarama’s food merchandise has expanded to include bread and pantry staples like cereal, rice and pasta sold at prices on par or below supermarkets.
However, the competition in the discount segment of the market Dollarama operates in intensified recently when the country’s biggest grocery chain began piloting a new ultra-discount store.
The No Name stores being tested by Loblaw Cos. Ltd. in Windsor, St. Catharines and Brockville, Ont., are billed as 20 per cent cheaper than discount retail competitors including No Frills. The grocery giant is able to offer such cost savings by relying on a smaller store footprint, fewer chilled products and a hearty range of No Name merchandise.
Though Rossy brushed off notions that his company is a supermarket challenger, grocers aren’t off his radar.
“All retailers in Canada are realistic about the fact that everyone is everyone’s competition on any given item or category,” he said.
Rossy declined to reveal how much of the chain’s sales would overlap with Loblaw or the food category, arguing the vast variety of items Dollarama sells is its strength rather than its grocery products alone.
“What makes Dollarama Dollarama is a very wide assortment of different departments that somewhat represent the old five-and-dime local convenience store,” he said.
The breadth of Dollarama’s offerings helped carry the company to a second-quarter profit of $285.9 million, up from $245.8 million in the same quarter last year as its sales rose 7.4 per cent.
The retailer said Wednesday the profit amounted to $1.02 per diluted share for the 13-week period ended July 28, up from 86 cents per diluted share a year earlier.
The period the quarter covers includes the start of summer, when Rossy said the weather was “terrible.”
“The weather got slightly better towards the end of the summer and our sales certainly increased, but not enough to make up for the season’s horrible start,” he said.
Sales totalled $1.56 billion for the quarter, up from $1.46 billion in the same quarter last year.
Comparable store sales, a key metric for retailers, increased 4.7 per cent, while the average transaction was down2.2 per cent and traffic was up seven per cent, RBC analyst Irene Nattel pointed out.
She told investors in a note that the numbers reflect “solid demand as cautious consumers focus on core consumables and everyday essentials.”
Analysts have attributed such behaviour to interest rates that have been slow to drop and high prices of key consumer goods, which are weighing on household budgets.
To cope, many Canadians have spent more time seeking deals, trading down to more affordable brands and forgoing small luxuries they would treat themselves to in better economic times.
“When people feel squeezed, they tend to shy away from discretionary, focus on the basics,” Rossy said. “When people are feeling good about their wallet, they tend to be more lax about the basics and more willing to spend on discretionary.”
The current economic situation has drawn in not just the average Canadian looking to save a buck or two, but also wealthier consumers.
“When the entire economy is feeling slightly squeezed, we get more consumers who might not have to or want to shop at a Dollarama generally or who enjoy shopping at a Dollarama but have the luxury of not having to worry about the price in some other store that they happen to be standing in that has those goods,” Rossy said.
“Well, when times are tougher, they’ll consider the extra five minutes to go to the store next door.”
This report by The Canadian Press was first published Sept. 11, 2024.
TORONTO – The U.S. Consumer Financial Protection Bureau has ordered TD Bank Group to pay US$28 million for repeatedly sharing inaccurate, negative information about its customers to consumer reporting companies.
The agency says TD has to pay US$7.76 million in total to tens of thousands of victims of its illegal actions, along with a US$20 million civil penalty.
It says TD shared information that contained systemic errors about credit card and bank deposit accounts to consumer reporting companies, which can include credit reports as well as screening reports for tenants and employees and other background checks.
CFPB director Rohit Chopra says in a statement that TD threatened the consumer reports of customers with fraudulent information then “barely lifted a finger to fix it,” and that regulators will need to “focus major attention” on TD Bank to change its course.
TD says in a statement it self-identified these issues and proactively worked to improve its practices, and that it is committed to delivering on its responsibilities to its customers.
The bank also faces scrutiny in the U.S. over its anti-money laundering program where it expects to pay more than US$3 billion in monetary penalties to resolve.
This report by The Canadian Press was first published Sept. 11, 2024.
