Yesterday, Wall Street mega bank, JPMorgan Chase, was the biggest percentage decliner in the Dow, losing 2.79%. Goldman Sachs, another Dow, was third, losing 2.56%. That was mild compared to other ex Dow global bank stocks. Morgan Stanley lost 3.55%; Citigroup 3.30%; while Deutsche, heavily interconnected to Wall Street banks, that trades on the NYSE, touched $12.60 intraday –2.85% it's lowest in more than 30 years.
What must be of concern to asset managers is how U.K. banks & businesses will be able to pay back the near $1 trillion owed to U.S. banks in loans, derivatives & guarantees. As GBP continues to fall vs USD, these loans are more expensive to pay back, thus raising the fear of increasing loan loss reserves at U.S. banks or. perhaps, outright bad debt write-offs.
Post Brexit, Fri 24 & Mon 27, global banks began hemorrhaging capital. Over the two-day trading, Citigroup lost $17.55b equity capital & sp dropped 13.45%. Morgan Stanley lost $7.13 b of equity MC & B of A dropped a stunning $19.11 b. Every major Wall Street bank was battered. If the trend continues, investors can perhaps expect to see a quiet announcement that JPM Chase & G Sachs may be replaced in the DJI Average by two different companies with better prospects going forward (not to mean U.S. economy has better prospects – just the illusion cast by the Dow).
Global bank fears are also driving the 10-year U.S. Treasury note to record lows re: safe haven play. As of Wed 6th, it’s trading to yield 1.35% after hitting new lows yesterday. T yields during the Great Depression were significantly higher than that, which ought warrant serious dialogue on what the Federal Reserve’s experiments in QE & reinvestment of principal on a $4.5 trillion Fed balance sheet has done to monetary policy & the safety and soundness of the handful of behemoth banks that constitute the core of the U.S. financial system.
