Amareos

Ryan Shea

Thematic (Sector/Industry)

Germany Financials / Thematic (Sector/Industry)

Europe’s banking sector is back in the spotlight – and, once again, it is for less than positive reasons. Unlike earlier episodes, however, the focus is not on the periphery of the region but its heartland, specifically Deutsche Bank (DB).  The catalyst for the sell-off in DB’s share price, which has slumped to multi-decade lows, was news that the US Justice Department intends to fine the bank USD 14bn for alleged misspelling of mortgage-backed securities.However, examining trends in crowd-sourced sentiment indicators it is clear that concerns about DB are hardly new and certainly pre-date the announcement of the fine. Both Stress and Fear towards DB have been in an uptrend since May 2015 and Sentiment and Optimism in negative territory since July last year (when DB’s share price was trading three times higher than its current market price).These crowd sentiment trends matter because commercial banks are different from almost any other type of private company in one very important respect. For a bank, even one the size of DB, confidence its greatest and most critical asset. And, just like trust, confidence is nebulous, fickle and asymmetric; that is to say, hard to acquire but quickly lost.As a result, banking sector crises tend to be highly non-linear. A non-linearity that stems from the fact that behaviour at such times is dominated by psychology, something the crowd-sourced sentiment indicators we track at Amareos are ideally suited to monitor.

Europe’s banking sector is back in the spotlight – and, once again, it is for less than positive reasons. Unlike earlier episodes, however, the focus is not on the periphery of the region but its heartland, specifically Deutsche Bank (DB).  The catalyst for the sell-off in DB’s share price, which has slumped to multi-decade lows, was news that the US Justice Department intends to fine the bank USD 14bn for alleged misspelling of mortgage-backed securities.However, examining trends in crowd-sourced sentiment indicators it is clear that concerns about DB are hardly new and certainly pre-date the announcement of the fine. Both Stress and Fear towards DB have been in an uptrend since May 2015 and Sentiment and Optimism in negative territory since July last year (when DB’s share price was trading three times higher than its current market price).These crowd sentiment trends matter because commercial banks are different from almost any other type of private company in one very important respect. For a bank, even one the size of DB, confidence its greatest and most critical asset. And, just like trust, confidence is nebulous, fickle and asymmetric; that is to say, hard to acquire but quickly lost.As a result, banking sector crises tend to be highly non-linear. A non-linearity that stems from the fact that behaviour at such times is dominated by psychology, something the crowd-sourced sentiment indicators we track at Amareos are ideally suited to monitor.

Sumitomo Mitsui Financial Group (8316 JP)

Mitsubishi UFJ Financial (MUFG) (8306 JP)

Sumitomo Mitsui Financial Group (Sponsored Adr) (SMFG US)

Sumitomo Mitsui Financial Group (Sponsored Adr)

Mitsubishi UFJ Financial (MUFG) ADR (MUFG US)

The Confidence "Interval"