I’ve a few charts up my sleeve this week which I’m sure Christine Lagarde (b1956), ex-head of the IMF and soon-to-be top dog at the European Central Bank (ECB), hasn’t seen. One, described by a social media pundit as "the worst chart in the world", is the Euro STOXX Banks index (SX7E). Had she seen it, I doubt she would have agreed with such alacrity and unseemly haste to accept the job as president of the ECB when Mario Draghi’s term ends. A career lawyer, she joined the French government through the back door in 2004, was promoted to economy and finance minister in 2007, and swept through the revolving door into the IMF in 2011 when disgraced Dominique Strauss-Kahn resigned.
Not to be confused with the STOXX Europe 600 Banks index, which includes non-eurozone banks like HSBC and UBS, the SX7E consists of a capitalisation-weighted 26 banks who were all initially involved in European Monetary Union. Spain counts for 31 per cent (Santander and BBVA), France 22 per cent (BNP, Credit Agricole and Société Generale), and Italy 18 per cent (Intesa Sao Paulo and Unicredit).
The chart of the SX7E index is a good illustration of the effects of big bang, financial engineering, and speculative frenzy; I’d call it a great chart with salutary lessons to impart. Surprisingly, volumes increased steadily since the euro’s introduction in January 1999 (at 1.95583 deutsche marks), through the 2012’s ECB ‘‘whatever it takes’’, until 2016 – when investors realised there’s precious little room for recovery. Today the index is around 83, less than a fifth of 2007’s record high of nearly 500, and back to where we were in 1992 – the very beginning of Continental Europe’s love affair with shares and banks. Descending highs since 2010, the trend suggests a drop to a new record low.
A lot less ugly is the chart of Spain’s Santander, which has spent the last two decades between three and nine euros. Today much closer to the bottom of this range than the top, key support lies between 2.75 and three euros. We expect this support to be tested this year; the big question is whether it will hold. Pity, because were it to give way, it would mark the end of a banking dynasty.
Best of this bunch is France’s BNP Paribas, which has spent most of the last 20 years holding between 24 and 69 euros. Currently mid-way between these two, we feel that, dragged down by other banks in the index, it might retest support between 24 and 30 euros.
I’ve saved the ‘best’ until last. A German bank, but felt it unfair to pick on Deutsche Bank which has had more than its fair share of time in the limelight this year. Commerzbank instead, which peaked at 284 euros in 2000, the one rumoured to have been considering a merger with Deutsche. An idea supported strongly by Angela Merkel herself, this wouldn’t have been a merger but a bailout with a strong probability of failing. For the last eight years it’s been capped at 14 euros, where it failed yet again early in 2018; time to take out the lows now.
