Europe Preview: Enough of Credit Crunch!
I had been covering the credit crunch since around 8:30 cet on August the 9th 2007 when BNP Paribas was forced to announce problems at 3 of their biggest funds. Producing Squawk Box, I remember Alchemy Partners Jon Moulton telling Geoff Cutmore that this would be just the start and he was right.
It has been a fantastic story to cover as a business journalist but after 263 days I sit hear asking will it ever end, please someone, just let us all move on.
Thankfully JP Morgan tells us today that the worst is over and expects continental European banks will only have to announce another €6.5 billion worth of losses. Calling the end of this crisis has proved costly and I appear to remember a similar upbeat note from S&P just hours before Bear Stearns went to the wall but the market does appear to have priced in the bad news.
As I write both HBOS of the UK and Deutsche Bank are reported to be considering significant capital increases ahead of earnings on Tuesday. Both traded higher in Monday’s session indicating the market is as bored of the story as I am.
The more interesting question for me is when do you buy the banks shares? Over 12 months the DJ Stoxx Banking index is off by 30 percent but JP Morgan says it remains ‘neutral’ on the sector until guidance is lowered by management teams for the rest of the year and beyond. If the lackluster economic forecasts from the European Commission on Monday are to be believed guidance will have to be cut as lending in particular will be weak for sometime to come and investment banking is another concern.
Is Tony Hayward getting to grips with BP?
Since Mr Hayward took over as CEO from Lord Browne a media blackout has been in place that has made it difficult to form an opinion on one of the most powerful businessmen in Europe.
Tomorrow he is forecast to unveil a 29 percent jump in profits of nearly $5.2 billion but most appear to be ready to focus on the negatives. There is good news though. Problems with output stoppages in the US are hopefully behind the group, the Thunder Horse platform in the Gulf of Mexico is close to reopening and operational efficiency is being addressed.
But is often the case those who shy away from talking to the media are likely to be beset by bad news stories. As I write much of the UK’s oil capacity is closed due to strikes at a major refinery in Scotland. Consumer groups and business associations are gearing up to condemn huge ‘windfall profits’ and analysts are more worried by weak refining margins in the US and difficulties with oil sands projects in Canada.
The big unknown for me is Russia where TNK-BP, which BP currently controls, is under pressure from Gazprom and its masters in the Kremlin. Gazprom wants control of the company, backdated tax charges are being handed out, and environmental concerns are being raised. It all sounds very familiar and there will be only one outcome to this story as rivals have already found to their cost.
It is no wonder Mr Hayward does not want to talk to the press, he can only see downside risks. Lord Browne was far more open, communicated his strategy well and built an oil major. Unfortunately despite the seat in the House of Lords he was taken down by the press so Tony may have a point.