September and October hold bad news for stock markets
and banks remain overleveraged as we head into the second leg of
the financial crisis according to Pedro De Noronha, the managing
partner at Noster Capital in London.
"There are problems coming from the resetting of US
mortgages and (the) euro area remains a big worry," he said.
"Germany is unwilling to save any other European
country," De Noronha said. "Merkel used up lots of political
capital saving Greece and she saved the Greek bond market in order
to save the French and German banking system from more big
losses."
"There are four or five countries that have major
structural problems that should not be in the euro," he said. "I
still have (yet) to see a politician who will shoot themselves in
the head on austerity."
"The Greeks have no choice but to cut, the others like
Spain are not doing enough, I am with the 'Austerian' school and do
not buy the Keynesian argument," he said.
On Monday, Nobel-prize-winning economist Paul Krugman
called
for another big stimulus
program for the US,
saying "(e)verything is pointing to the need for more
spending."
Laughable Tests?
De Noronha said he is also very worried about the
banking industry and is shorting five of the biggest bank stocks in
Europe: UBS,
Barclays
[BARC-LN 315.50
13.10 (+4.33%) 
] ,
Intesa Sanpaolo,
Unione de Banche and
BBVA.
"The recent
stress tests made me
laugh," he said. "We only stress tested what the banks told us, I
did not see anyone testing anyone until they had gone broke."
"When I look at Tier 1 Capital ratios, I find things
propping them up that are not assets that can be drawn on in a
crisis," he said. "The real capital 1 ratio of some major banks is
just 1.7 percent and I am shorting five major European banks as a
result."
The majority of banks remain over leveraged going into
what could be the second leg of the financial crisis, De Noronha
added.
“The regulators used 6 percent as the threshold for
defining the minimum capital ratios, but that 6 percent number
includes non-cash assets such as deferred tax assets and goodwill,"
he said. "If you use only tangible book equity the 6 percent of the
biggest offenders turns into closer to 2 percent which implies a
leverage ratio of 50 times. That is hardly conservative for current
the current economic reality."
On Tuesday, Credit Suisse took a different stance,
boosting its rating on banking to "overweight" from "market
weight," saying that economic risks are "overplayed" and that
"funding should be less costly than initially feared."
