BY VICTOR HILL
Opportunities in Focus
Financial Armageddon? It's not inevitable, but… Risks in the international financial system have been rising for a while. In recent months bank valuations and some credit default swaps (CDSs – the rates at which banks insure each other) for European banks have reached levels not even seen during the Credit Crunch of 2008. Brexit has created a climate of uncertainty – not just for the UK, but for Europe as a whole. But there is another malign force at work – the relentless rise in debt in a zero-interest world. Even cash-generative China is awash with debt. A crunch of some kind is coming – though what form it will take is arguable. Financial Armageddon over the next two years is not inevitable, but it is beginning to look likelier than not. Don't despair. I've got some ideas on how to survive a possible banking collapse.
Brexit – a climate of uncertainty
Europe's banks are in crisis
On 10 October JPMorgan Chase CEO Jamie Dimon said that Brexit makes the likelihood of the Eurozone failing five-times higher. This was at the annual meeting of the Institute of International Finance in Washingtoni. I don't want to argue the pros and cons of Brexit here, but to contextualise it in an increasingly dangerous global financial system.
The decline and probable fall of Deutsche Bank (FRA:DBK) over the course of this year has been a slow-motion car crash. If Deutsche Bank fails then a long line of Italian, French and Spanish dominoes could fall in turn.
not receive German government support, on the basis of capital and liquidity – the two critical metrics of a bank's health – Deutsche has (in theory) a clean bill of health. Its Core Tier 1 capital ratio is at 10.8% and it has €215bn in liquidity reserves. This core Tier 1 ratio is proportionally better than those of banks that got into difficulties during the financial crisis.
While Frau Merkel was adamant on 24 September that the bank would
The problem for Deutsche, along with other European banks, is profit-
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