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10,352 Posts.

819

10/04/20

15:06

Post #: 43989962
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Originally posted by StefanF: ↑

The banks have been asked to stop discretionary capital expenditures such as dividends with the aim for them to use the excess capital to continue lending. Lending in an economic downturn increases bank's risk-weighted assets, the denominator in bank capital ratios, hence it's quite likely these ratios will come under a lot of pressure. That's why banks need to hold onto capital (the numberator in capital ratios) to prop these ratios up.

Dividends will continue to be under pressure with interest rates expected to stay low for at least 3 years so bank profits are squeezed from both sides, higher bad debt charges and lower net interest margins. If you want to see how prolonged low interest rates can do to banks you can look at Deutsche Bank or Commerzbank as an example.

I'm not suggesting banks aren't good long term investments and dividends won't resume, but at what rate and with what yield is uncertain. In my view your optimism is somewhat misguided.

All in my opinion (and coming from a person working in banking).

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FYI profits come from spreads not rates.

APT Price at posting: $22.00 Sentiment: None Disclosure: Not Held
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