Analysts at Bankinter offer an investment strategy for the European banks ahead of the new year. Overall they reiterate their recommendation to maintain a structural position in banks due to the improvment in the quality of their balances and the recovery in business volumes.
The recovery seen in the banks’ activity at an international level at the beginning of this year has been temporary. In line with data from the BIS, the banks’ international activity fell $91 in the second quarter from the first. With the exception of loans to non-banking institutions.
Ratings agency Moody’s said yesterday that the European banks’ costs have increased due to the fact that the rise in regulatory and restructuring costs is eating up all the savings resulting from branch closures and workforce reductions.
José Luis M. Campuzano (Spanish Banking Association) |The ECB believes the net effect of a policy of zero interest rates (negative in the case of the deposit rate) has been positive for the revenues of the different economic players. But the impact has not been equal.
José Luis M. Campuzano (Spanish Banking Association) | It’s been balance sheet adjustments and the worsening of the deliquency rate which have been mainly responsible for the deterioration in banking margins over the last few years. It’s important for the ECB to establish a clear strategy for monetary normalisation for the future.
The environment for European banks is changing for the better. The sector’s fundamentals are improving and Bankinter sees the recent ‘impasse’ in their trading performance as a buy oportunity.
The Italian banks are struggling for survival. And the prospects for some of the biggest German banks are also gloomy. But the authorities in both countries are reluctant to act quickly on the assumption that time may solve the problems.
José Luis M. Campuzano (Spanish Banking Association) | The most significant item in the minutes of the ECB Governing Council’s July meeting was the repeated reference to the banking sector. And particularly with regard to the massive beating banking stocks are receiving in the equity markets.
Miguel Navascués | Take a look at the outstanding balances in the ECB’s TARGET2 payments system, which maintains an up-to-date record of the debts and loans each country has with the other. As can be seen from the table below and the subsequent graphics, Italy, where the banks have 360 billion euros of doubtful loans, as well as Spain, have again begun to show signs of weakness.
The European banks are having nothing but trouble in the last few months. And if they needed something else to further cloud their outlook – negative interest rates, meagre margins, increasing capital demands…- doubts have begun to emerge lately over whether the sector can continue to pay the high interest on the so-called CoCos (Contingent Convertible Capital Instruments), contingent convertible bonds.