What's going on?

Societe Generale (SocGen), the major French bank, said that it might miss its profit target this year � and its stock sold off 12%. It was part of a wider selloff that left European banks down more than 5% – and US banks struggling as well.

What does this mean?

SocGen�s problems relate directly to one of investors’ biggest concerns about banks globally: their profitability. Banks simply are unlikely to make as much money this year as investors had hoped, partly due to extremely low interest rates (see story above). But there are also concerns about the quality of the �assets� that banks own, like loans they�ve made to businesses who, in this economic climate, might be unable to pay them back. If what you own isn�t worth what you think it is, and your ability to make money in the future is in question, then you�re probably not in a good spot.

Why should I care?

For the market: American banks are suffering too. European banks are clearly having a rough go of things this year (you can read more in our previous article). But US banks are down about 20% on average. The consensus opinion amongst investors appears to be that Europe�s banks are more troubled than those in the US � but it�s still not a pretty picture stateside.

The bigger picture: Banks are supposed to grease the wheels of capitalism. In a healthy economy, banks lend businesses and people money who then go off and do things like hire more workers and buy houses, e.g. things that are good for the economy. But when banks� profits go down and their loans become increasingly imperilled, it usually means they have less money to lend out. And so that impacts the real economy in a negative way.