The suggestion this week by the Swedish Riksbank that it may raise SEK100 billion by issuing foreign currency-denominated bonds should not just be seen as precautionary action, but as a warning signal about the state of the wider European banking sector, according to BNP Paribas. “Over the past couple of days we have seen S&P putting Italian banks on negative watch, Norway warning that its banks may be under-capitalised and may need to raise equity and ECB’s [governing council member Christian] Noyer asking for a European bank stress test that has been vehemently opposed by the German finance minister [Peer] Steinbrueck,” the bank says. “There is the saying: ‘There is no smoke without fire’ and with the Riksbank ‘et expresis verbis’ suggesting that the ‘current crisis will be severe and prolonged’ may tell us that there might be more trouble ahead,” it adds.
With bonds and equities both under pressure, it looks like hopes that the financial crisis is nearing an end are misplaced and that we will remain stuck in an era of relative devalue for some time yet.