Crispin Odey warns of banking crisis as profits nosedive

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Beleaguered  hedge fund tycoon Crispin Odey has warned that rock bottom interest rates will force banks to go cap in hand to shareholders to cushion massive losses over the next three years, triggering fears of another banking crisis.

The outspoken boss who recently lost his status as a billionaire, has privately sounded the alarm to investors that profitability at European banks will be sliced in half by 2019 due to European Central Bank boss Mario Draghi’s easy-money policy.

A Port Talbot-style collapse of the industry will fuel the chaos, creating ballooning losses in the banking system and putting pressure on ever dwindling profits.   

“Banks need rights issues to deal with these losses but why would anyone want to subscribe while … margins are driven lower by ongoing quantitative easing,” Odey told the investors. “Only higher interest rates can make banks attractive.” 

The dire prediction, included in a confidential presentation to his largest investors seen by the Standard, will fuel fears the banking system is lurching towards another crisis despite the best efforts of policymakers.

“Banks have to work hard for very little at the moment.”

Crispin Odey

Italian banks have already faced strife after they were forced to set up a bail-out fund earlier this month to cope with €360 billion of toxic loans on their books. 

“UK banks are not in the front of the firing line yet,” Odey later told the Standard. 

“The problem is there is a turn in the credit cycle and you end up with companies like Port Talbot and there are write-offs. Banks have to work hard for very little at the moment.”

The Mayfair magnate has issued the stark warning in a bid to assuage his nervous investors who have seen their money invested in his flagship fund slump by more than 30% this year.

He blames low rates and quantitative easing for encouraging “misdirected investment” into the wrong parts of the economy. A clutch of bets on the Australian dollar and Japanese interest rates have also turned sour.  

The difference between the rate banks get on loans and the rate paid on customer deposits has been squeezed by Draghi’s move to make them pay the ECB to park their cash, which severely dents their profits. 

Odey’s warning comes as figures show he lost his status as a billionaire last year. His fortune shrank by £200 million in 2015, according to the Sunday Times Rich List. He is now worth £900 million.

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April 23, 2016 |
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