“European commercial banking remains attractive”

The banking sector has started the year on a strong foot, following the collapse of Silicon Valley Bank (SVB), the loss of confidence in Credit Suisse and its subsequent purchase by UBS, followed by the contagion caused by the turmoil affecting medium-sized US banks. Before these events, it was one of the most attractive sectors for investors thanks to the increase in interest rates. Does this remain the case? In Europe, it does.

"With the current interest rates environment with rates between 3-3.5% in the medium term and following the publication of results for the last quarters, with improvements in 'guidance' and with no signs of deterioration in the quality of assets, we believe that the sector remains attractive, commercial banking in particular," says MAPFRE AM's equity investment manager, María Torres.

And this potential can already be seen in equity markets. Despite seeing a slight downturn when the turmoil first arose, the Stoxx 600 Banks, which brings together the largest banks in Europe, saw growth of more than 5% in the year, compared to a contraction of 27% in the KBW Bank Index, which brings together US banks.

The situation of banks on the Old Continent cannot be compared to the situation on the other side of the Atlantic, where smaller regional banks are not subject to same regulation as large American banks.

"Since the 2008 financial crisis, capital requirements and buffers and hedging of doubtful assets have increased, and the solvency and liquidity position of banks enhanced to deal with episodes of volatility caused by specific problems affecting specific entities”, points out Torres.

In Europe, there has been no outflow of deposits, as is the case in the United States, thanks to the fact that banks have a diversified deposit base, with a significant part of retail deposits guaranteed by the Deposit Funds of each country for the most part.

“It is a very stable deposit base. What we are starting to see in Europe is a change in the deposit mix, a switch from sight deposits to term deposits, as banks begin to reprice their liabilities and depositors look for greater returns," says the asset manager.

Alberto Matellán, chief economist at MAPFRE Inversión, does not rule out further problems in the sector, although these will always involve medium-sized US banks.
At present, no contagion of this turbulence is expected to affect the US or European economies, Matellán explains, adding that the impact is more psychological. “There is a series of problems affecting medium-sized US banks, but they are unlikely to spread to the US economy, let alone the European one”, he stresses.

Solid results in the first quarter

Almost oblivious to the problems that US banks are experiencing, European banks have ended the first quarter with strong results. HSBC earned 12.9 billion dollars (11.7 billion euros), tripling the figure seen a year earlier, while UniCredit recognized profit of 2.6 billion, more than seven times the figure it recorded in the first quarter of 2022. In turn, BNP Paribas recorded record profit of 4.4 billion, more than double the previous figure.

Major Spanish banks (Banco Santander, BBVA, CaixaBank, Banco Sabadell, Bankinter and Unicaja Banco) registered joint profit of 5.7 billion euros during the first quarter of the year, up by 13.89%, despite the impact of the temporary tax, according to data compiled by Europa Press.