As the first half of the current was quite tough for the European financial institutions, currently analysts say that EU banks are preparing for the financial crisis in 2016 second half. So, should we be alert?
August 30, AtoZForex – The first six months of 2016 were quite disturbing for the global financial markets, as the mixture of uncertainties coming with Brexit and poor corporate earnings results across the regions hit the financial world.
Are EU banks preparing for the worst?
To be specific, European banks has a very tough beginning of the year, as the volatility in the wake of Brexit had a huge impact on the banking stocks. For example, Deutsche Bank and Credit Suisse has experienced quite a loss in their shares after the referendum results were announced.
The current state of the EU banks is highly dependent on the start of the UK government’s process of implementing the Article 50. However, the economists say that the EU banks are “preparing for an economic nuclear winter situation.”
According to CNBC, a source from a key investment bank said that the financial services companies have created a plan that is designed for the worst-case scenario, which is the recession. The source has stated:
“This could mean triggering Article 50, the referendum in other European nations leading to a break-up of the euro or sterling hitting below $1.20 or lower. The banks are ready for anything now.”
The source shared this information and added that the 2016 turmoil is nowhere close to the Lehman Brothers collapse in 2008. Also, the global financial markets are much more flexible this time. He said:
“Markets hate uncertainty and the events this year have unfortunately created a lot of mystery around what is going to happen next.”
What is for the second half?
For the moment, the majority of the financial firms have been indicating the uncertainties and volatility as the main reasons for their poor performance data. Additionally, some of the companies believe that the second half of the year is about to be challenging. A number of banks cut their exposure to equities, because of the volatile behavior of the assets in the first half of 2016.
The senior market analyst at OANDA, Craig Erlam, has commented on the matter:
“The second half of the year is going to be very challenging for U.K. corporate. Not only are they contending with the possible recession in the U.K. and more prolonged slowdown, the uncertainty factor surrounding Brexit leaves planning for the future a very difficult task.”
Another opinion regarding the future of the financial institutions comes from the senior analyst at Hargreaves Lansdown, Laith Khalaf. He stated that he sees the main problem in the uncertainty caused by Brexit, “though that’s likely to persist for two years or more, so I suspect companies are likely to roll up their sleeves and get on with their business.”
Mr. Khalaf says that the challenges will continue to appear, but the financially related industries should focus on maintaining their solvency ratios and “de-risking and simplifying their businesses.”
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