10 March 2022

Reuters Analysis: Ukraine crisis leaves European banks' renaissance in tatters

Europe's struggling banks entered 2022 on a wave of optimism not seen in more than a decade, with interest rates set to rise at last, the COVID-19 pandemic receding, and profits rising. The Ukraine crisis has swiftly knocked that flat.

Russia's invasion has triggered an exodus of Western companies from the country, sent commodity prices soaring, hammered the euro and even threatened a global recession, just as Europe's lenders looked poised to re-enter growth mode.

Investors had been cautiously returning to the sector, lured by cheap valuations and the prospect of excess capital set aside during the pandemic being returned as dividends and buybacks. read more

But capital distribution plans by Italy's UniCredit (CRDI.MI) appeared to be hanging by a thread this week after it said a write-off of its Russian business would cost around 7.4 billion euros ($8.1 billion), the starkest indication yet of how the crisis is tarnishing the sector's key appeal. read more

The STOXX index of European banks (.SX7P) has fallen 15% since the invasion on Feb. 24, against only a 5% fall in the benchmark STOXX index (.STOXX), making banking one of the worst performing sectors in the region.

European banks' shares trade at a discount of more than a third to their U.S. peers, RBC Europe calculations show, and could yet fall further, with valuations still above troughs seen in previous crises.

That reflects a major change in mood in just the last few weeks. Banks' full-year earnings reports in February reflected an upbeat tone, with lenders including HSBC (HSBA.L), Barclays (BARC.L) and UBS (UBSG.S) posting bumper profits, promising more shareholder payouts and citing a much improved outlook. read more

Assessing the potential damage to individual banks is complicated, Eric Theoret, global macro strategist at Manulife Investment Management, said, because of the variety of ways they are exposed...

more at Reuters

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