Recession: The Decimation of Bank Profits
February 10, 2012 Falling revenues, increasing losses, profits adrift: this is the Western banking background in late 2011! And yet all this is happening in a very favorable context for banking institutions’ balance sheets who continue to assign their own prices to their assets (using the accounting tricks of « hold to maturity » (1) – or « fair value »). But even this may not last more than a further quarter or two ... because of Greece and Euroland! And yes, they really are the causes of something very damaging to the banking model of recent decades, but not in the sense that Wall Street and the City would want to believe, i.e. because the Euroland banks would collapse dragging down the whole world with them (so far, only Wall Street and the City in 2008 gave us a banking system collapse, sealed off - for a time - by a raid on taxpayers' money (2)). No, if there really is Greek and Euroland responsibility, it’s in Euroland’s willingness to require creditors to include the losses in their balance sheets, putting pressure on the banks to take on a substantial portion of these losses. This wasn’t done in 2008. Greek debt is now at a 50% discount. But Greece is but a drop in the ocean of coming bank losses: the entire Western banking system floats on a sea of more than doubtful debts.
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