The European banks carry a heavy level of investments in sovereign debt, so they do have an issue. Over time, they have been under capitalized comparing to the US banks. On the other hand, all the talk about absolute crisis is overblown; he thought we will be able to get through it. The European banks have raised a lot of capital, currently they have a rough patch, but they will get through it.
The fact is the European banking stocks, some are down 50%, 60% and it’s like falling off a cliff. It is the buying opportunities. The scenario we have today is overblown, the shorts jump all over all of these situations. And the fact that a stock goes down substantially in a short period does not inherently do anything about the fundamental of the company itself.
People worried about the write-downs of the banks, sometimes it’s three times bank’s market capitalization. 170% at RBS, 162 at Barclays… The funding issue for the institutions, whenever it is, would be driven out of the psychology of the moment. In the US, late ’08 and early ’09, the US had funding issues. BB&T didn’t have the funding issue though, but the system did. It was because there was immediate crisis of confidence. And we have those crises, banks won’t lend to banks and no one will lend to anyone. So certainly if the banks end up having to kind of write this off, and it would further create a sense of panic and a funding problem. However, if the European Central Bank and others cooperate as our Fed did, the likelihood of real liquidity meltdown is extremely remote.
The immediate write-down gets blown out of proportion and creates more panic. Are we heading for a double-dip? Is there a sustained recession? What impact will that have on the banking system? Kelly King doesn’t think we are going to double dip. We are slowing, around several years of slow growth. We have been through 20, 30 years of too fast of growth. Everyone bloated their balance sheet and got too high leverage. So actually the slow growth is actually a good thing. People have to focus more on cost control, and at worker level, to work harder and smarter. Productivity is a driver of efficiency and overall performance.
Kelly King said he has been in this for 30 years and been through the cycles. What we really have here is not a crisis of debt, not the crisis of financial system, but the crisis of leadership. When he talked to business people, they are ready to invest, they haven’t invested much, but they are ready, it’s the time to invest. He thought that we’d see the business community rally, and we’d be well on our way to sustained, positive recovery.
The full interview in this below link
BB&T CEO: European Bank Crisis Overblown
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