The restructuring firm Alvarez & Marsal, which handled the bankruptcy of Lehmann Brothers, is now operating in Austria. His Austrian boss, Bernhard Engel, explains in which areas things are now getting tricky for banks.
Vienna. Banks are currently in the debate primarily because of their high profits. What is deliberately overlooked is that they are facing a delicate phase that requires careful maneuvering from the bank bosses. Bernhard Engel, the Austrian and Easter European boss of Alvarez & Marsal (A&M), speaks about this.
The management consultancy has made a name for itself as a crisis manager. The restructuring firm was responsible for the global resolution of Lehman Brothers as well as the restructuring of the Greek National Bank and the Kaupthing Bank in Iceland. A&M advises several governments on financial market reforms and most recently Switzerland with regard to Credit Suisse.
The press: Banks make high profits. So you might think they’re doing really well.
Bernhard Engel: The banks are still doing very well. Emphasis on yet. Profits were very good last year due to the abrupt rise in interest rates and the subsequent higher interest margins. At the same time, the deterioration in the economic situation was not yet reflected in the balance sheets. That is currently changing.
The European Central Bank actually wanted to avoid this situation. On the one hand, there are high interest rates from which the banks benefit. On the other hand, the economic downturn begins. Will that become a problem?
The ECB was unable to achieve a soft landing with interest rate increases without an abrupt slowdown in the economy. Now it could become a perfect storm, depending on how many of the numerous risks come to fruition. The ECB reacted far too late. Now there is the sharp braking. Active risk management is now the most important thing for banks to get through the next twelve months. The effects can be seen above all where the low interest rate landscape has been taken advantage of.
How did the banks act during the phase of low interest rates?
The low interest rate period was very bad for the banks. They had to take a close look at what they were spending money on and where they could save costs, otherwise they would have made losses. In addition, they had to meet the high requirements of the regulators from the time of the financial crisis, i.e. create large deposit buffers. This means that the banks are well prepared for the situation that is coming now – better than ever. Because something is brewing.
What is brewing?
We are seeing a deterioration in the economy. This forces banks to assess which sectors of the economy react and how sensitively. The high inflation also leads to high wage agreements and corresponding costs. The geopolitical situation is also difficult, think of Russia/Ukraine, Israel and Hamas, Serbia/Kosovo or China and Taiwan. The higher interest rates also lead to a need to revalue the bonds that banks hold in their own portfolio. That’s why the ECB is doing stress tests. The Austrian banks have done very well here.
“If the bank is blind, it can’t give a loan.”
Which areas are particularly in focus?
Areas with particularly high capital costs, such as: B. the real estate sector. You usually use very little equity there. But also leveraged loans – when a highly indebted company takes out loans from investors. They already had high interest rates before the interest rate turnaround. The banks that have high exposures here are particularly targeted by the regulator, but in Austria this is of little relevance.
It is no secret that the financial market regulator is concerned about real estate and corporate loans. The ECB in particular checks in detail, even towards individual customers. If a company were unable to service loans, how big a problem would the bank be?
In the real estate sector, the office segment is at risk. The return to the office after Corona sometimes takes place slowly or not at all. The non-premium locations have high vacancies. Together with the higher interest rates, this leads to a lower valuation. As a result, the banks’ collateral for the corresponding property becomes smaller. Therefore, banks test cash flow and check whether the loan can be repaid, especially if rental income is lower. Then the banks require higher security. Commercial properties are also affected.
What does the bank do if a company doesn’t report a balance sheet and it can’t view the data?
2023-10-10 05:42:01
#Banks #facing #perfect #storm
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