Banking crisis in Portugal: Part 2
After the bankruptcy of Espirito Santo group, the number of non-performing loans (NPL) in Portugal rose from 10% to 15% only in the last two years. A similar event started political turmoil in Italy. Italian banks having 17% of bad credits are not alone in Europe. For anyone who understands reasons behind problems in the European banking sector, it shouldn’t be a surprise. Not a single issue leading to 2008 crisis has been solved. Not learning from the past destines one to repeat the same mistakes. Today’s most probable solution – an inflationary reduction of debts (i.e. inflationary tax) with toxic derivatives pushed onto the back of an average taxpayer thanks to the ECB monetary intervention.
French exposed to Italian banking sector
Canyon Distressed Opportunity Fund likes the backdrop for credit
The Canyon Distressed Opportunity Fund III held its final closing on Jan. 1 with total commitments of $1.46 billion, calling half of its capital commitments so far. Canyon has about $26 billion in assets under management now. Q4 2020 hedge fund letters, conferences and more Positive backdrop for credit funds In their fourth-quarter letter to Read More
French banking sector owns lion’s share (280 bn USD) of the cumulative Italian bank credit exposure.
Holding position in a sector which is overleveraged and at the brink of bankruptcy is nowhere near responsible. Italy, on the other hand, were granted great bargaining position politically, giving them a good night’s sleep. Yes, their banking sector is bankrupt but Matteo Renzi doesn’t need to worry because EU politicians cannot allow anyone to fail. If Italy goes bankrupt, France follows and then Germany and whole Europe is next.
Maritime trade lags, banks hurt
Maritime companies felt the drop in international trade volume. Crediting logistics companies when there is no trade can backfire violently on banks. German Bremen Landesbank is one of those institutions. Bank’s problems started when final number of write-offs was bigger than its assets. Nord/LB took over Bremen Landesbank (and a deficit of 29 bn EUR) and stabilised situation.
Another victims of poor maritime trade are banks in South Korea. The scenario is mirroring German situation. Difference is, Korean government intervened. Problem in Asia is much bigger as Korean banks own 47 bn USD worth of bad debt exposure in the maritime trade sector. Seoul brought 9.5 bn USD financial rescue to ease the strain. Seeing the volume of international trade steadily dropping (maritime transport is one of the biggest sectors in Korean’s economy) much more will be needed.
Demand for rail transport shrinking
Maritime is not the only transport ailing. Similarly rail transport suffers. Demand lost around 15-20% looking at similar periods in 2015 and 2016. This is another result of an economic crisis snowballing as we speak. After opening new Panama Canal (mentioned in last month’s Independent Trader News) prices of rail shipment can be cut even more in the US. Bad news took 14% (since peak of 2015) from Dow Jones Transportation (DJT).
“Private property” returns to Cuba
After decades of socialism and central planning, the Communist Party of Cuba (PPC) changes its approach to the economy. The plan for the future contains a statement which could enable existence and functioning of the SME sector in Cuba. Surprise indeed. It may be that seeing how Venezuela descends into abyss, Cuban president Raul Castro decided to tone down on the leftist ideology (always) leading to the same end – common, shared poverty. Unfortunately, the EU politicians still disagree on the topic.
Turkey is on bullion spree
Demand for gold skyrocketed in Turkey by 558% y/y. Failed coup and its consequences definitely contributed to this change. Apart from Ankara’s political turbulence, private sector is visibly interested in precious metals as gold runs deep inside Turkish culture. Government’s reserves ballooned from 100 to 500 tonnes in the last 5 years.
Chinese UnionPay took over Visa and MasterCard
UnionPay, equivalent of known credit card companies expanded and is now bigger (in the number of issued cards) than both US companies altogether. It is second in transaction volume and this is only after 14 years since inception of the Chinese firm. Since 2006 Chinese cards were available in 100 countries all over the world.
UnionPay with CIPS (equivalent of SWIFT) is a pillar of Chinese trading system thanks to which Beijing became a trusted trade partner to many. This is very important, especially when looking at the growing South China Sea conflict. Asian powerhouse is now guarded against financial attack from the West making it much easier for the trading sector to survive any retaliation. The US just lost the economic sanctions’ card which worked so well with Iran.
China taking over British ARM Company?
Japanese Softbank for 32 bn USD acquired ARM Company. Bought enterprise is a microchip producer for military and civilian use. According to analysts, Chinese could be behind Softbank and if this is true, it would mean that another achieved a milestone on the pathway of losing dependency on American high tech producers.
I mentioned before that Beijing wants to move microchip production home. Billions of USD are invested in factories and securing technologies and designs. It didn’t take long for them to succeed. ARM know-how is sufficient to produce independently and cut monopoly of American producers. This is fundamental to China’s defence ability. Beijing able to independently produce components (used also in ballistic missiles) is a stronger rival that has to be reckoned with.