September 27, 2020

Off the Charts: European Banks Thriving as Investor Fears Ease

The bank crisis is not yet resolved, but it “appears to have been put on the back burner of investor concerns,” Jeffrey Yale Rubin and Kevin Pleines of Birinyi Associates said in a research bulletin sent to clients this week.

The accompanying charts show what has happened to the share prices of an index of euro zone bank stocks, and to each of the 28 members in the index, since June 30. In early July, the index kept falling, but by late in the month it turned around. Anyone who bought all the banks at the end of June is up by about 25 percent. Anyone with the good fortune to buy at the exact bottom has a profit of about half the money invested.

The bank stocks have outperformed other European stocks and they have outperformed American bank stocks, although the shares of most American banks also have risen.

The reasons for the relaxation of investor fears are simple enough. There is a growing confidence that euro zone institutions will succeed in their support efforts. Finance ministers are still arguing about the details of a single regulator for banks throughout the zone, but the European Central Bank’s promise to lend money to banks that need it is widely accepted, and investors believe that Germany will put up whatever money is needed to keep the euro zone from breaking up.

Troubled governments like Italy and Spain are still paying much more than Germany to borrow, but their rates have fallen. Costs have declined even in Portugal, which is in the weakest position of countries other than Greece. The French banks led the way up in late 2012, but even the price of Banco Espirito, a Portuguese bank, has soared by about half since midyear. There are still major concerns about troubled Spanish banks, and two of those join an Italian institution in being the only stock market losers over the period. But the National Bank of Greece managed a small gain.

None of this means that those banks have served long-term shareholders well. Only one of them, a Finnish institution, has a share price higher than it did at the end of 2007, before the financial crisis.

But, for now at least, investors seem to have growing confidence that the banks will survive. Given the fears of a few months ago, that is reason for celebration.

Floyd Norris comments on finance and the economy at

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