According To Morgan Stanley This Is The Biggest Threat To Deutsche Bank’s Survival
Two weeks ago, on one of the slides in a Morgan Stanley presentation, we found something which we thought was quite disturbing. According to the bank’s head of EMEA research Huw van Steenis, while in Davos, he sat “next to someone in policy circles who argued that we should move quickly to a cashless economy so that we could introduce negative rates well below 1% – as they were concerned that Larry Summers’ secular stagnation was indeed playing out and we would be stuck with negative rates for a decade in Europe. They felt below (1.5)% depositors would start to hoard notes, leading to yet further complexities for monetary policy.”
As it turns out, just like Deutsche Bank – which first warned about the dire consequences of NIRP to Europe’s banks – Morgan Stanley is likewise “concerned” and for good reason.
With the ECB set to unveil its next set of unconventional measures during its next meeting on March 10 among which almost certainly even more negative rates (for the simple reason that a vast amount of monetizable govt bonds are trading with a yield below the ECB’s deposit rate floor and are ineligible for purchase) the ECB may cut said rates anywhere between 10bps, 20bps, or even more (thereby sending those same bond yields plunging ever further into negative territory).
As Morgan Stanley warns that any substantial rate cut by the ECB will only make matters worse. As it says, “Beyond a 10-20bp ECB Deposit Rate Cut, We Believe Impacts on Earnings Could Be Exponential.”
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