Deutsche Bank will be a headwind for Europe
Shares of Deutsche Bank are down 2.4% today but that only tells you how bad expectations were coming into the earnings report.
"Deutsche Bank AG said Wednesday that its second-quarter net income fell 98% from a year earlier, hurt by weaker performances in trading, investment banking and other core areas," the WSJ reports.
The company made €20 million in the quarter compared to €818 million a year earlier.
Meanwhile, Italy is racing to secure private bailout for Monte Paschi after two previous bailouts failed.
I don't want to dwell too much on individual bank problems but there is clearly a system-wide issue, or at least large pockets in trouble. It was the same thing in Japan in the 1990s as the government failed to reinvigorate banks after a financial crisis. The resulting zombie banks are one of the reasons Japan has never recovered its dynamism.
For better or worse, the US did it right by bailing out its banks. You can't grown a 21st century economy without a strong financial sector.
The problem in the Eurozone is that EU rules are restrictive and governments are weak. The only possible outcome is weak growth and a strain on the currency union until it eventually breaks.