Danger of New Banking Collapse – Highly Leveraged Italy, Spain Could be Trigger – Analyst
Highly leveraged illiquid banks in Italy and Spain, both with corporate sectors in poor shape, could trigger GFC2 – a new global financial crisis, says US equity analyst Paul Schulte.
Interviewed on RT’s Kaiser Report ahead of the January 25 Syriza government victory in Greece, which shook the eurozone and governments across Europe, he said: “Italian banks are very highly leveraged and have no liquidity…” the trigger for a new (GFC) event is likely to be Europe and specifically Italy and Spain after Greece.”
He added major European banks such as Deutsche Bank and France’s BNP were still too big and he expressed concerns about the size of the “balance sheet hangover of derivative exposure (estimated in the case of Deutsche Bank to be larger in gross terms than the entire world economy at 72 trillion US dollars)”.
In France he said the assets of BNP, at 2.7 trillion euros, now “greatly exceed” the size of the French economy and the bank had been growing its balance sheet despite the widespread concerns about too-big-to-fail institutions, that followed the 2007 subprime crisis and worldwide economic collapse caused, largely, by global criminal banking activities and banker excesses.
Watch the interview here:
Published on Jan 15, 2015
In this episode of the Keiser Report, Max Keiser and Stacy Herbert are joined by Paul Schulte for a double header. In the first half, they discuss the economic catastrophe that is the European corporate and banking sector heading into 2015 – especially for Spain, France, Italy and then Germany. In the second half, they discuss the McFarlane effect as the new chairman of Barclays could begin dismantling the behemoth. They also discuss the number one territory for fintech being . . . China!
Before introducing his guest, Max Kaiser, a host who does not mince his words and is seen by some as a broadcasting maverick, described banking as “a very stressed global sector”. Paul Schulte said the stress in the banking system was bad news for the euro. “The German government has of course denied any discussion about Grexit (Greek exit from the eurozone) but the Greek debt to GDP ratio is approaching 200 per cent and is unfundable while its corporate sector is in bad shape. To me however Greece is a sideshow, to me Spain and Italy are key. They are both in bad shape corporate-wise as are their banking sectors. So to answer the question the (soft) underbelly of the world in (terms of what might trigger a new Lehman event , the one which provoked the GFC and economic collapse) is Spain and Italy.
Paul Schulte has 27 years experience as an analyst. He has experience in economic policy (NSC economic desk and Republic of Indonesia Ministry of Finance), sell side research (Credit Suisse, Barings, Lehman Brothers, Nomura, China Construction bank Intl.), buy side (Tiger Cub hedge fund in the US for 5 years), and academia (part-time MBA professor at UST/ NYU Stern School, HKU/Columbia MBA program and Kellogg for the past 15 years).
His research integrates analysis of banks and liquidity with corporate credit to get a clear and robust view of equity markets. Balance sheets drive markets. Income statements do not. Liquidity, whether we like it or not, IS solvency. When credit lines are pulled, danger begins. Bank liquidity rules the roost in equity markets, and these trends very often spill over into real estate and currency. Get bank liquidity and solvency right and the rest follows.