The banks and “the kiss of death”
- Posted by Marc on March 29th, 2009 filed in markets
Banks market capitalisation as % of GDP (1990-2008, source: FT).
Like an addict who needs drugs persistenly, this is the path to destruction. The banks need to continually capitalized, increase its capital to offset the enormous balance leverage.
Receiving the new public o private injections, each capital increase is like a nice kiss, the problem is that it is “the kiss of death“. The continued dilution of their existing shareholders, as I said more than 6 months ago, will result that banks shares will arrive at a 0 value.
“To be clear, we do not expect to use proceeds of this equity offering to further decrease leverage, but rather to take advantage of future market opportunities, which are abundant. And over all, we stand extremely well capitalized to take advantage of these new opportunities. From a risk management perspective, we continued to operate in our disciplined manner we’re known for,” said Erin Callan, the CEO of Lehman Brothers, in June of 2008.
“At all times, the firm had a capital cushion well above what is required to meet supervisory standards,” SEC chair Chris Cox wrote of Bear Stears…after the firm had collapsed.
We also attached a number of excellent charts where you will see the brutality of the global banking crisis and its impact in relation to its weight in the economy, and also the world rankings for bank capitalization.
Business Week global banks rankings by market capitalisation, may 31, 1999 (source: FT).
US and UK banks are the top 7 by market cap in the world.
Global banks ranking by market cap, march 17, 2009 (source: FT).
The world has changed. Chinese banks are top 3 and only US JP Morganand UK HSBC bank, maintains the top 5.
Global world banking map in 1999. US, UK and Japan banks are the biggest, (source: FT).
Present world banking map by market cap (2009, source: FT).
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3 Responses to “The banks and “the kiss of death””
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March 30th, 2009 at 7:15 pm
Doesn’t this also show that Chinese Banking sector is over-evaluated currently..
Amit
April 9th, 2009 at 2:21 pm
It’s possible Amit, but in my opinion it show the US banks extreme debility.
October 25th, 2009 at 5:07 pm
[...] As you will see the interactive chart, the total capitalization of U.S. banks in September 2009 is $947 billion, the October 2007 was $ 1.87 trillion, so more of $923 billion destruction, because there have been many capital increases. See the post, “the banks and the kiss of death“. [...]