European Banks – Outlook

European Banks appear to be moving in the right direction. A few charts to substantiate this claim.

The Eurozone is 2-3 years behind the U.S., after enduring two recessions following the GFC relative to just one in the U.S., but appears to have finally moved into a period of self-sustained economic expansion.

 

Increased loan volume, a function of GDP growth, is a key driver of bank profitability.  Additional drivers include pricing, which should improve as rates continue to rise, and better asset quality.

 

U.S. and European banks both remain below pre-financial crisis valuations, but only U.S. banks have broken through their recent P/B range. 

 

Cambiar Conclusion: Stronger economic growth in Europe, combined with higher interest rates and muted credit costs, should allow further multiple expansion for Euro banks to narrow this gap.  

 

Disclosures

Certain information contained in this communication constitutes “forward-looking statements”. Due to market risk and uncertainties, actual events, results or performance may differ materially from that reflected or contemplated in such forward-looking statements. Any characteristics included are for illustrative purposes and accordingly, no assumptions or comparisons should be made based upon these ratios. Statistics/charts may be based upon third-party sources that are deemed to be reliable, however, Cambiar does not guarantee its accuracy or completeness. Past performance is no indication of future results. All material is provided for informational purposes only and there is no guarantee that the opinions expressed herein will be valid beyond the date of this communication. 

Chart 3: U.S. Banks are represented by the KBW Bank Index, a benchmark stock index for the U.S. banking sector made up of large U.S. national money center banks and leading regional institutions.  European Banks are represented by the STOXX Europe 600 Bank Index, a benchmark stock index for the European banking sector.