from Hacker News

Brexit Is a Lehman Moment for European Banks

by vool on 7/10/16, 2:01 PM with 143 comments

  • by bmmayer1 on 7/10/16, 3:16 PM

    It's completely plausible that the post-Brexit Deutsche Bank is undervalued by the market due to panic and uncertainty, and Snapchat is overvalued by the market due to hype.

  • by kevindkeogh on 7/10/16, 2:41 PM

    This is fundamentally wrong. As Matt Levine said, "proper phrasing is 'DB supports $1.7trn of assets with an equity value equal to SnapChat's'" [1]

    [1] https://twitter.com/matt_levine/status/742800372473946112

    Edit: For a more complete analysis of DB's capital position, they have published Moody's report on their credit. [2] I don't see much in there that would suggest DB was insolvent, but they do seem to be having some difficulty reorganizing their business.

    [2] https://www.db.com/ir/de/download/Moody_s_on_DB_26_May_2016....

  • by palmdeezy on 7/10/16, 2:44 PM

    I used to work in the financial institutions group at a buldge bracket bank doing valuation and M&A on the banks team. The thing about bank valuation that's weird, is that it's balance sheet valuation and not income statement valuation. Banks don't sell things, they sell money. The make money off interest earned on loans - their cost of capital (~interest paid on deposits=0) - branch/hr overhead (if they have branches). Anyways, to compare a bank to another company that sells physical goods or widgets is kind of silly to begin with. They are not valued the same way, and they make money completely differently.

  • by cm2187 on 7/10/16, 2:54 PM

    The guy who wrote that article is such an idiot. A reducing market capitalisation is not "shrinking the banks". It might mean the banks may be making less profits, but that doesn't make them safer, rather more dangerous on the contrary (as they can't climb their way out of a loss through earnings). Shrinking a bank means reducing its balance sheet, its leverage not its share price.

  • by TheOtherHobbes on 7/10/16, 5:32 PM

    This story has moved on. There's already talk of an urgent need for a 150bn Euro bailout.

    http://www.welt.de/finanzen/article156924408/Deutsche-Bank-C...

    Or the slightly more sensationalised English version:

    http://www.zerohedge.com/news/2016-07-10/deutsche-banks-chie...

    Comparisons to $UNICORN are irrelevant. If DB melts down, 2008 will look like an inconsequential stutter.

  • by coherentpony on 7/10/16, 2:39 PM

    > now worth just 17 billion euros

    'Worth' as defined by 'what someone is willing to pay'?

    Saying Snapchat is 'worth' 17 billion euros is completely and utter nonsense.

  • by scribu on 7/10/16, 2:44 PM

    > America sorted its banks out swiftly after the 2008 credit crisis.

    Is there general agreement that the US government acted effectively in this matter, not just for bankers, but for society as a whole?

  • by return0 on 7/10/16, 3:55 PM

    If we follow the cheeky title, snapchat has the chance of a lifetime to buy its way to profitability.

  • by bjornsing on 7/10/16, 3:39 PM

    General argument of this story seems to be that "if an industry is not doing well in the open market it needs taxpayer doleouts to prop up share prices". Europe has tried that many times before (e.g. with the shipping industry) and it has always ended in tears... Let's not go down that road yet again!

  • by majc2 on 7/10/16, 3:51 PM

    > When the biggest bank in Europe's biggest economy, with annual revenue of about 37 billion euros, is worth about the same as Snapchat -- a messaging app that generated just $59 million of revenue last year -- you know something's wrong.

    More on the Snapchat side, than the DB side.

  • by rsp1984 on 7/10/16, 4:27 PM

    Snapchat is not 'worth' 17 billion. Some investors start to make money on the investment iff Snapchat exits or IPOs above 17b, but that's about it. The term 'valuation' is completely misleading when applying it to this 17b number.

    In fact, due to liquidation preferences in the term sheets Snapchat's true valuation (i.e. the point at which investors actually lose money) immediately post investment, according to basic math, is $0.

  • by fharper1961 on 7/10/16, 5:53 PM

    Another salvo in the continual barrage of "why we always need to bail-out banks"from the financial media.

  • by solidangle on 7/10/16, 4:45 PM

    The title seems to suggest that this due to the Brexit, but in reality the value of Deutsche Bank has been in decline since the financial crisis of 2007-2008.

    http://www.visualcapitalist.com/chart-epic-collapse-deutsche...

  • by abpavel on 7/10/16, 2:46 PM

    *Current market valuation.

    I think it's an important differentiation.

    The underlying dynamics of the two companies are quite different, and I'm not sure their "worth" can be directly compared.

    One is worth a lot to the granny taking out cash from her pension fund, the other is worth a lot to the advertisers wanting to cash in on the cloud social services.

  • by adrenalinelol on 7/10/16, 7:55 PM

    The pessimism around Snapchat in this thread is reminiscent of the negativity surrounding Facebook. Advertising is moving to social media, Snapchat is currently the best platform for targeting the demographic advertisers value the most (young people).

  • by dschiptsov on 7/10/16, 3:29 PM

    Since when Snapchat is a publicly traded corporation?

    Snapchat valuation is nonsense.

  • by acd on 7/11/16, 11:06 AM

    Central banks does not fix the economy. Maybe the Brexit was a analogy to poker play call on central bank strategy whatever it takes print new money as central bank debt.

    Central bank balancec sheet vs inflation expectation http://www.zerohedge.com/news/2016-07-05/central-bank-death-...

  • by oneloop on 7/10/16, 9:17 PM

    What does this have to do with Brexit? The graph on Italy's banking system bad loans starting rising during the 2008 crisis.

  • by ChuckMcM on 7/10/16, 6:33 PM

    Thanks for updating the title. I wonder sometimes if the residual malaise in the economy is about not writing off the bad loans. Cancel the loan, roll up the debt. Painful yes, and disruptive, but one way to recalibrate investment risk and to normalize capital flows more accurately.

  • by bogomipz on 7/10/16, 3:06 PM

    It was much more than just the failure of Lehman Brothers that brought the financial world to its knees in 2008. This article is rubbish.

    Comparing a Banks market cap to Snapchat? You can't take this seriously. I thought more of Bloomberg.

  • by joeyspn on 7/10/16, 4:42 PM

    Comparing Snapchat with Deutsche Bank sounds like a (bad) joke. Snapchat could go bankrupt and everyone would laugh at it... DB will never go bankrupt and here's a simple pic that explains why:

    https://pbs.twimg.com/media/CbBMXbTWAAAl-PG.png

    It's another league. That could cause a x10 times Lehman. Too big to fail. If DB falls, the rest of the world follows suit...

    Another pearl from the article:

    > If the rot isn't stopped soon, Europe will have found a novel solution to the too-big-to-fail problem -- by allowing its banks to shrink until they're too small to be fit for purpose.

    Really? and what about the derivatives exposure?

  • by idong1veafu on 7/10/16, 4:12 PM

    Yes, I wonder what's going to happen to those VC money poured into unreal valuations in Silicon Valley, if the banks in the Eu start imploding...

  • by beedogs on 7/11/16, 12:43 AM

    It's pretty annoying when the discussion here revolves around the title of the article, and then the admins go and change the title on HN.

    Stop doing that.

  • by roymurdock on 7/10/16, 3:03 PM

    Can anyone who uses snapchat speak to how effective the introduction of the "Discovery" ads section has been.