Goldman Says Europe Bank Funding Means No Crisis Repeat

  • No evidence of strain in euro or dollar funding, analysts say
  • Europe banks extend rout Tuesday; Deutsche Bank Down 4.3%

European banks have “ample liquidity,” with deposits flowing in and higher capital buffers reducing the risk of another financial crisis, according to Goldman Sachs Group Inc.

“So far, there is no evidence of strain” in euro or dollar funding for European banks, while rising deposits last year reinforced lenders’ liquidity, Goldman analysts including Jernej Omahen and Pawel Dziedzic said in a note on Tuesday. Use of European Central Bank cash is down from its 2012 peak, and banks have added 800 billion euros ($806 billion) in “external capital hikes” since the start of the financial crisis, they wrote.

European bank shares extended their rout after Deutsche Bank AG stock and debt tumbled amid questions over its ability to pay coupons on its riskiest bonds. Deutsche Bank shares fell 4.3 percent in Frankfurt on Tuesday, following a drop of 9.5 percent Monday. The 47-member Stoxx 600 Banks Index slid 4 percent, taking its drop for 2016 to 27 percent.

“Known drivers” such as low loan growth and worsening credit quality will weigh on earnings, but earnings trends don’t justify the current share jitters, according to Goldman Sachs. They said BNP Paribas SA is Goldman’s newest large-capitalization pick in the euro area, as the French bank is “offering positive capital formation,” a cash dividend and low bad-loan provisions that are declining further.

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