European banks are a good bet, JP Morgan advises investors

Spanish banks use of ECB credit

Spanish banks borrowed 8.1 percent less from the European Central Bank in December 2012 than they did in the previous month. Their debt with the eurozone’s central bank fell 19.5 percent comparing to last August, when dependence on ECB credit reached a maximum point.

Still, the volume of liquidity required punches well above the relative weight of Spain‘s banks in the financial system of the euro area: it was €313.1 billion or 32 percent of the total financing line used, while banks from Spain represent a 10.7 percent of all euro entities’. But the trend, now in its fourth consecutive month, is looking positive. In fact, the Spanish banks have already refinanced in the markets some €8.15 billion in debt.

The news fits within the more attractive frame European banks sit now in. Stock returns have outdone market average by 44 percent since July 2012, JP Morgan said in a note on Tuesday.

“Profitability-hunting in the markets is propping up euro peripheral sovereign debt and bank’s bonds. Banking credit movements show shares have potential and markets are underweighting them,” analysts explained.

Even if valuations have improved little since six months ago, 70 percent of European banks are priced below the sector’s 0.85 price/tangible book, which would mean investors have a higher chance of obtaining gains.

About the Author

Victor Jimenez
London contributor at, reporting about the City and the Eurozone economies. He regularly writes for Spanish newspaper group Prensa Ibérica--some of his features include shared work with journalists of The Daily Telegraph and the BBC.

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