Hike funding

FIG DCM issue gets complicated as rising NPLs and funding costs hurt confidence

Rising interest rates increase bank income. Bank executives told investors during the years of quantitative easing and negative rates that when rates turned around and went back up, everyone would finally see how much profit banks could make.

But now that central banks are up 75 basis points, investors don’t seem to like it much, especially in Europe. This is despite net interest income posting double-digit growth in 2022 and banks easily beating consensus profit estimates for the second quarter, pushing some governments toward windfall taxes.

On September 5, the Euro Stoxx Bank index had fallen 24% since the start of the year and was down 33% from its peak in February, just before Russia invaded Ukraine.

Russia’s announcement in early September that it will not reopen the Nord Stream 1 gas pipeline after fixing a suspected oil leak has heightened anxiety in already feverish financial markets.

The new baseline from Deutsche Bank economists predicts a recession next year in Germany that will reduce GDP by 3-4%.

If we enter a prolonged slowdown, there will be many loans that will not be able to renew their financing

Neil Devaney, Weil, Gotshal & Manges

As sky-high energy prices impose their own tightening of financial conditions and politicians brace for energy rationing, fear of a rise in non-performing loans (NPLs) now outweighs hopes of a rise. net interest margins.