The Finrestra podcast

Europe is flooded by American tourists.

Is it because of the strong dollar? 

No.

I argue that higher deficits in the US are a major part of the reason why Americans are richer than Europeans.

(This episode was re-recorded for better sound quality)

The war in Ukraine, the rise of China, economic stagnation, and deteriorating relations with Africa are some of Europe’s most pressing geopolitical challenges.

In this episode, I talk about how banks reflect these geopolitical shifts.

Until the 2022 invasion of Ukraine, EU politicians and bankers treated Russia like any other Central and Eastern European country. Banks like UniCredit, Raiffeisen Bank International, Société Générale and others had significant subsidiaries in Russia, just as they had in e.g. the Czech Republic, Poland or Bulgaria.

Vice versa, Russian banks did business in Europe.

However, since the invasion, all but one Russian bank in the EU have been forced to shut down. In contrast, European banks continue to operate in Russia, to the chagrin of European and American officials.

As the visit of Xi Jinping to Hungary and Serbia demonstrates, good political relations and Chinese investment go hand in hand. Usually, the larger a country’s GDP, the more foreign banks it attracts. But although Hungary has a small economy, it has more Chinese banks than e.g. Austria, Sweden or Romania.

Macron talked about the need for cross-border consolidation of European banks. It’s easy to suspect ulterior motives, as BNP Paribas and Crédit Agricole are well placed to buy foreign competitors. But given the single European market, the dominance of local banks in the biggest euro countries doesn’t seem right.

Finally, as France’s military and political power in Africa wanes, French banks have been selling their African subsidiaries to local banks.

Future episodes will be about how to sell SocGen, the effect of higher interest rates, and the frozen Russian central bank assets at Euroclear.

Transcript at https://blog.janmusschoot.be/2024/06/10/putin-xi-macron-how-geopolitics-shapes-banking/

In this episode, I tell you why higher interest rates will make 2023 the most profitable year ever for euro banks.

If you're listening to this in 2024, I predict on 16 April 2023 that:

1) some banks are trading at less than 4 times their 2023 profit
2) SocGen will make a profit in France (according to the country-by-country report)
3) Irish banks AIB and Bank of Ireland will double their annual profit (i.e. 2023 profit vs 2022 profit)
4) 2023 will be the most profitable year ever (measured in return on equity monitored by EBA)

Links discussed in this episode:

Euro area statistics: https://www.euro-area-statistics.org/

EBA risk dashboard: https://www.eba.europa.eu/risk-analysis-and-data/risk-dashboard

I discuss what's going on with the rescue of Credit Suisse.

Also the situation in the US with SVB and First Republic Bank. 

Finally, some thoughts on euro area banks.

European bank stocks dropped a lot on 15 March 2023, in the aftermath of the failure of Silicon Valley Bank (SVB). Credit Suisse is down 25%, other European banks are down more than 10%.

Should you be worried? I explain why European banks don't have the same issues as SVB (more stable deposits, less bonds).

However, the liquidity position of European banks has gone down a lot since September 2022. That's because banks have repaid TLTRO loans to the ECB.

Further reading/watching:

https://www.positivemoney.eu/2022/12/banks-windfall-profits/

https://youtu.be/1FIOazUxt80

https://twitter.com/JanMusschoot/status/1635948354436726786

Warren Buffett once said: "Only when the tide goes out do you discover who's been swimming naked."

With inflation going over 10%, clearly the ECB was exposed as a "naked swimmer" in 2022.

But inflation wasn't the only tide that went out for the European Central Bank.

I also talk about the ECB's faulty risk management, and Lagarde's lack of leadership...

HSBC sells its Canadian subsidiary to RBC. That makes sense, as HSBC was only a small bank in Canada.

Although Canada was just 3% of HSBC's global operations, the sale brings in $10 billion. That's about 8% of HSBC's market cap!

HSBC should use this money to gain market share in its core regions.

By buying Standard Chartered, HSBC can strengthen its position in Asia.

Acquiring NatWest (RBS) would make it the largest retail bank in the UK.

But the cheapest option is something you might not expect...

The European Central Bank is fighting energy-driven inflation by hiking interest rates. 

But what if there's a better way? 

In this episode, I describe my proposal for a European Green Infrastructure Company, funded by the ECB.

The ECB could have used the years of below-target inflation and high unemployment to accelerate the transition to a zero-carbon economy.

This would have made the euro area less dependent on imported fossil fuels. 

And I argue that this proposal is more in line with the ECB's mandate. For example, the ECB would not have bought goverment bonds (monetary financing of governments is prohibited).

Further reading/listening/watching:

The plan: http://blog.janmusschoot.be/2017/11/15/green-infrastructure-bonds-with-macro-strings-attached-how-the-ecb-could-fulfill-its-mandate-by-fighting-climate-change/

Podcast with Nick de Boer:

https://www.youtube.com/watch?v=hXNBfVqaSM0 (part 1)

https://youtu.be/abK6j2n2NbQ (part 2)

My research on inflation in Europe: https://youtu.be/zsoBQ9_W5Sk 

(also available in text: http://blog.janmusschoot.be/2022/09/28/energy-intensity-is-driving-the-uneven-inflation-in-europe-unemployment-deficits-debt-and-interest-rates-are-not/)

My research on the ECB's interest rate hikes: https://youtu.be/RDg8Aw0Fq_c 

"Exotic" banks add to the local flavor of your holiday destination.

In this summer episode, Jan talks about the banks and financial centers in Europe's most visited tourist destinations:

7. Greece
6. Austria
5. Germany
4. The United Kingdom
3. Italy
2. Spain
1. France

Do you know why a small town like Frankfurt is Germany's financial center? What country has most large banks? Where can you see the oldest bank in the world? And why is the HBO series Industry based in London?

Impress your family or colleagues with your knowledge :)

Banks mentioned include BNP Paribas, Santander, JP Morgan, Caixabank, UniCredit...

Check out the Finrestra YouTube channel for profiles of European banks!

Second part of the interview with Nik de Boer on the secondary mandate of the European Central Bank (ECB).