Breakingviews - Euro-banks have done their time in valuation jail

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From Breakingviews - Euro-banks have done their time in valuation jail

The headquarters of Germany’s Deutsche Bank are pictured in Frankfurt, Germany, September 21, 2020. REUTERS/Ralph Orlowski

LONDON, Jan 26 - European banks undeniably earned their reputations as financial ne’er-do-wells. Their low stock-market valuations were hard-won through years of risky lending, trading slip-ups and excessive financial engineering. But investors might be missing how much lenders like Deutsche BankMajor euro zone and UK banks are trading at a 40% discount to the region’s wider benchmark index, using price to forward earnings multiples tracked by Refinitiv.

With growth slowing, and chief EU bank watchdog Andrea Enria warning of rising customer defaults, investors seem to be assuming that the same will happen again. But the banks arguably deserve more credit for their rehabilitation – which might be thought of as a kind of six-step recovery programme.First, Europe’s banks have purged many bad loans.

 

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