European banks increase value in anticipation of Fed rate hikes

European bank stocks have been on the rise since the third week of December following the announcement by the Federal Reserve Board on rate hikes by early spring, with good business outlook for financial institutions with high interest rates and large margins. Is shown.

Stocks Europe 600 Bank index With the support of the Federal Reserve Board, it has risen 9.8% in a month and 5.92% in the last five days. Minutes It was recently released and we found that it focused on hiking rates faster than expected.

The index reached its highest level since October 2018, surpassing the Pan-Euro index, which rose 2.35% in a month. According to analysts, the coordinated move from the European Central Bank will ensure a significant increase in the bank’s earnings.

When a central bank raises interest rates, it usually indicates a stronger economy with low unemployment and no need for help by businesses. Banks have a small number of bad assets and the amount of loan charges increases as credit acquisition becomes more difficult. Banks do not always give depositors a hike when interest rates rise.

In addition, the margin between the amount of interest paid on the savings deposit and the yield from the national treasury will be wider, leading to more profits. US banks have large amounts of cash that they can invest in immediately if interest rates change.

Barclays rose 3.24% to trade at $ 11.16, the highest level since October. BNP Paribas increased by 2.25% to the highest level in more than three years. HSBC has grown by more than 10% in a month, and Deutsche Bank has increased in value by more than 10% since December 31st. Swiss multinational investment bank and financial services company UBS has increased its equity value by more than 26% in the last six months.

European bank stocks, which trade at 8.8 times futures earnings, are rated lower than US banks, which are nearly 13 times lower. Another reason to support the trajectory of equities is the stable demand for credit across Europe.

The epidemic of Omicron slowed the economic recovery due to a shortage of new personnel. However, experts expect the turmoil to continue only during the first three months of 2022, after which the employment market has grown steadily, with US employers averaging 292,000 new jobs per month in 2022. Is expected to be added.

For banks with more transactions and lower default rates, corporate recovery is favorable. According to Reuters, Bank of America analysts expect earnings of € 23 billion ($ 26 billion) to result in an upward shift of 100 basis points in the bond yield curve.

Naveen Athrappully


Naveen Athrappully is a news reporter covering business and global events in The Epoch Times.