All trading involves risk. Losses can exceed deposits.
40-year heritage
152,600 clients worldwide
10,000 markets to trade

Europe’s banking crisis in charts

Parts of Europe’s banking system are creaking once more, with concerns focused on the whole Italian banking sector and German giant Deutsche Bank. The impact can clearly be illustrated using charts.

All trading involves risk. Losses can exceed deposits.

Nearly eight years after the peak of the financial crisis and the collapse of US investment bank Lehman Brothers, Europe’s banking system remains on life support, reliant on cheap money being thrown into the system by central banks. They’re struggling to grow profits and build capital buffers themselves, partly because of the low interest rates that those central banks brought in to try and stimulate growth and inflation in the wake of the financial crisis. Many banks are also still being hit by huge fines and charges for bad practices in the run-up to the crisis, and are relying on cost-cutting to preserve profits. 

After recent EU stress tests of the banks, officials insisted that the banking system is slowly returning to health, but it hasn’t stopped investors fleeing the sector, spooked by developments in Italy and Germany. There’s also been criticism of the EU tests for not being as tough as US tests.

Italy’s banks are in particular crisis, with Italian Prime Minister Matteo Renzi having to arrange a €5 billion private sector rescue of third-largest lender Monte dei Paschi di Siena, the third recapitalisation of the bank in as many years. The deal with a pool of investment banks will see nearly €28 billion of non-performing loans moved into a special vehicle that will be securitised for sale in an effort to give the bank a fresh start. Renzi is busy hailing the deal, but investors are showing scepticism.

A planned rescue deal for Monte dei Paschi di Siena has failed to convince investors

Monte dei Paschi di Siena

The new sell-off has affected the whole Italian sector, including Unicredit

Unicredit

Germany’s banks are also suffering

Over in Germany, Deutsche Bank is also in focus. The bank, which is set to drop from the Stoxx 50 index next week following a 50% drop in its share price this year, has pledged to accelerate cost-cutting after reporting that pre-tax profit dropped 68% in the first-half of 2016.

It has been described by the International Monetary Fund as the riskiest of all the world’s big banks — it is central to the whole German banking system — and had to reassure investors about its financial health after a steep drop in its share price at the start of the year. 

Deutsche Bank shares remain under pressure

Deutsche Bank

Germany’s second-biggest bank, Commerzbank, this week reported a 30% drop in net profit for the first-half of the year, and issued a profit warning for the year as a whole. Commerzbank executives criticised the European Central Bank’s introduction of negative interest rates, saying the policy was set to wipe hundreds of millions of euros off profits. Still, they also said the bank was well capitalised and wouldn’t need to raise fresh equity.

Commerzbank

UK banks have not been immune to the sell-off in recent days

The UK banks fared better than the Italian and German banks in the EU stress tests, but they haven’t been immune to the sell-off in the past few days. 

Banks

Banks

Banks

The sector index has stabilised early on Wednesday, with HSBC shares among the top gainers in the FTSE 100 after a $2.5 billion share buyback soothed investors who should have been spooked by the scrapping of a 'progressive' dividend policy, return-on-equity targets and a 29% drop in first-half pre-tax profit.

The buyback comes after HSBC sold its Brazilian business last month in a $5.2 billion deal, while profits are being hurt by slowing growth in both the UK and Hong Kong.

HSBC

What next?

The banks are not currently in the same state of crisis as they were in 2008. The banking system is not frozen, banks in most countries are better capitalised than they were, and central banks are greasing the wheels of the system.

At the same time, the Italian banking system needs to be cleansed of the bad loans weighing on the entire system, and banks everywhere need to start seeing higher interest rates if they’re going to increase retail banking profitability. That prospect appears dim at the moment. 

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Find articles by analysts

Education

  • Limits

    Learn the different ways you can open and close a position – from a simple, immediate trade to an automatic instruction to deal in your absence. Orders can help you lock in profits or guard against loss: get to know the various types and see how to use them.

  • What is a trading plan?

    A trading plan is a tool that you can use to clearly define your trading objectives and help you achieve them. In this module we explain how to construct your personal plan, and how to implement it.

  • Leverage and margin

    In this section we introduce our trading platform and illustrate the ease with which you can place a bet on a wide range of markets. We also cover features such as stops and limits and explain how spread betting with leverage works.