It's time Investors need to pay attention to the financial sector as a clue to what might occur in the Broader Markets.
In 2008, as we were very close to one of the biggest crisis in the history of the World Economy, the banking sector was weak all year. They were signaling trouble that might be coming soon. And boy, it was earlier than expected!
While a handful of investors had foreseen the storm on the horizon, most folks had their ears shut. However, just months before the epic collapse, the industry tycoons were praising the economy on television as if they were in a fairy land. Government officials were promoting the idea of growth and renewal in the economy.
Well, we all know how that turned out.
Are we seeing it coming back again? Is there Déjà vu with the banks?
Because, The US Federal Reserve yesterday said Deutsche Bank US operations had failed the central bank's annual stress test due to "widespread and critical deficiencies" in its risk management.
The Fed's yearly stress tests are meant to determine if big banks are strong enough to sustain a major economic downturn. The qualitative test done looked at capital planning, including share buybacks and dividend payments.
The authorities also mentioned, "Concerns include material weaknesses in the firm's data capabilities and controls supporting its capital planning process, as well as weaknesses in its approaches and assumptions used to forecast revenues and losses under stress"
Here are some facts about Deutsche Bank in 2018:
• S&P Downgraded the rating from A- to BBB+
• The audited annual financial statement show a loss of €735m (£648.21m), significantly higher than the €497m (£438.31m) figure provisionally posted at the beginning of last quarter.
• Despite this being the third year in a row with losses, employees of the largest German bank received around €2.3 billion (£2bn) in bonuses while shareholders will receive dividends of 11 cents (9.7p) per share.
• Job cuts : 7,000 job cuts were made in May and 10,000 more would be done by the end of March 2019 as per reports.
• Since 2008 Crisis, shares are down from EUR 88.50 to EUR 9.20 as of 1st July 2018.
• Times Square - New York office is shut down recently.
Well in 2008, many legislators have blamed Fannie Mae and Freddie Mac for the entire crisis. To them, the solution was to close or privatize the two agencies. But if they were shut down, the housing market would collapse. Because, they had guaranteed 90 percent of all mortgages. Furthermore, securitization, or the bundling and reselling of loans, has spread to more than just in the housing sector.
The government must step in to regulate. Congress passed the Dodd-Frank Wall Street Reform Act to prevent banks from taking on too much risk. It allows the Fed to reduce bank size for those that become too big to fail. However, what about Goldmans & the Morgans or JP's ?
There will still be capitalism until may be, we all move to MARS with Bitcoins, Bitcoins and only Bitcoins! :D
What do you think ?
